GENERM- 


LIBRARY 

OF    THE 

UNIVERSITY  OF  CALIFORNIA. 
Accession         9.6..Q..3.2  ....•    Class 


PRINCIPLES  AND  PRACTICE 
OF  FINANCE 


A  PRACTICAL  GUIDE  FOR  BANKERS,  MERCHANTS,  AND 
LAWYERS.  TOGETHER  WITH  A  SUMMARY  OF  THE 
NATIONAL  AND  STATE  BANKING  LAWS,  AND  THE 
LEGAL  RATES  OF  INTEREST,  TABLES  OF  FOREIGN 
COINS,  AND  A  GLOSSARY  OF  COMMERCIAL  AND 
FINANCIAL  TERMS. 


BY 
EDWARD    CARROLL,   JR. 


G.  P.  PUTNAM'S  SONS 

NEW   YORK  LONDON 

27    WEST   TWENTY-THIRD    STREET  24    BEDFORD   STREET,   STRAf 

<&§t  Knickerbocker  Press 
1897 


,1,0 


COPYRIGHT,  1895 

BY 
EDWARD   CARROLL,  JR. 


GENERAL 


Ube  Iknicfeerbocfcer  press,  TOe\v  IRocbelle,  1R 


PREFACE. 


WHILE  there  are  many  books  treating  of  the  principles 
of  money  and  some  which  discuss  the  operations  of 
finance,  to  the  writer's  knowledge  there  is  no  one  work 
combining  both  a  treatment  of  principles  and  a  discussion 
of  practices.  This  apparent  want  the  writer  has  sought 
to  supply  in  the  present  work,  and  he  hopes  that  the 
practical  information  contained  herein  will  be  sufficient 
reason  for  its  issue.  This  book  is  intended  to  be  a  prac- 
tical one,  from  which  a  person  can  obtain  data  on  the 
subjects  treated,  rather  than  an  exhaustive  exposition  of 
the  theory  of  money.  The  Principles  of  Finance  are  dis- 
cussed only  to  that  extent  deemed  necessary  to  enable 
the  reader,  uneducated  in  the  principles  of  money,  to 
clearly  understand  the  Practice  of  Finance. 

The  book  is  divided  into  two  parts.  The  first  which 
deals  only  with  the  Principles  of  Finance,  and  the  second 
which  is  confined  to  the  practical  application  of  those 
principles  through  the  machinery  of  finance  and  com- 
merce. 

The  principles  of  finance  are  discussed  in  the  first  two 
chapters  in  as  short  space  as  is  compatible  with  a  suf- 
ficiently comprehensive  treatment  to  make  them  clear. 

The  remainder  of  the  book  is  devoted  to  the  Practice 
of  Finance,  and,  while  it  is  necessarily  not  exhaustive,  it 
has  been  sought  to  discuss  those  parts  of  finance,  a  knowl- 
edge of  which  is  most  necessary. 


96032 


IV  PREFA  CE. 

The  writer,  fully  realizing  the  practical  impossibility  of 
any  one  individual  possessing  sufficient  information  of 
the  various  subjects  discussed  to  treat  of  them  authorita- 
tively, has  freely  availed  himself  of  information  obtainable 
by  him,  and  desires  here  to  acknowledge  his  indebted- 
ness to  many  bankers  and  business  men  for  their  kind 
interest  in  his  work  and  the  valuable  data  afforded  him. 

The  entire  manuscript,  involving  as  it  necessarily  does 
many  legal  questions,  has  been  submitted  to  Messrs.  Red- 
field  &  Redfield,  whom  the  writer  desires  especially  to 
thank  for  their  painstaking  work.  The  author's  thanks 
are  also  due  to  Mr.  D.  D.  Sherman  for  his  able  advice  as 
to  many  legal  questions  ;  to  Mr.  Frank  H.  Edmunds  for 
information  in  regard  to  the  presentation  and  protest  of 
negotiable  paper;  to  Mr.  I.  L.  Carroll  for  valuable  data 
in  relation  to  stocks  and  bonds  ;  and  particularly  to  Mr. 
Maurice  L.  Muhleman,  of  the  United  States  Sub-Treasury 
at  New  York,  for  his  uniform  courtesy  in  supplying  the 
writer  with  statistical  information,  and  especially  in  regard 
to  the  United  States  Sub-Treasury  ;  and  to  Mr.  William 
Sherer,  the  present  manager  of  the  New  York  Clearing 
House,  for  information  in  relation  to  that  institution. 

No  one  realizes  more  fully  than  the  writer  the  liability 
to  error  in  a  work  covering  so  large  a  field,  the  informa- 
tion for  which  must  be  drawn  from  many  sources  ;  and 
while  he  cannot  even  hope,  despite  his  efforts  to  render 
his  work  as  free  from  error  as  possible,  a  complete  immu- 
nity therefrom,  he  asks  for  a  fair  consideration  of  the  work 
in  its  entirety. 


CONTENTS. 


PART  I. 

PRINCIPLES  OF  FINANCE. 
CHAPTER  I. 

PAGE 

Introductory  —  Barter  —  Value  —  Barter  —  Money  —  Bullion  —  Metal 
Money — Fiat  Money — Paper  Money — Government  Regulation  of 
Money  and  Currency  .........  I 

CHAPTER    II. 
Capital — Credit — Interest — Exchange — Price      .          .          .  27 

PART  II. 
PRACTICE  OF  FINANCE. 

CHAPTER  I.       , 

Money  and  Currency  of  the  United  States — The  New  York  Sub- 
Treasury  ...........  60 

CHAPTER    II. 
Banks — National  Bank  Act 68 

CHAPTER  III. 

State  Banks — New  York  State  Banks  of  Deposit,  and  Banking  Laws  .       90 

v 


vi  CONTENTS. 

CHAPTER  IV. 

PAGE 

Methods  of  Business  of  Banks— Loans— Mutual  Assistance— Over- 
Certification — Reclamation — Management — Board  of  Directors — 
Officers  and  Employes  .  .  .  .  .  •  •  .no 

CHAPTER  V. 
New  York  Clearing  House          ........      I32 

CHAPTER  VI. 
Savings  Banks 138 

CHAPTER  VII. 
Trust  Companies         .         .         .         .         .         .         .         .         .         .15° 

CHAPTER  VIII. 

Safe  Deposit  Companies — Building  and  Mutual  Loan  Associations — 
Co-operative  Loan  Associations — Mortgage  and  Debenture  Com- 
panies ...........  163 

CHAPTER  IX. 

Private  Bankers — Brokers — Stock  Brokers — Note  Brokers — Puts  and 

Calls 178 

CHAPTER  X. 
Exchanges — New  York  Stock  Exchange    ......     194 

CHAPTER  XI. 
Corporations,  Officers,  Etc.          ........     200 

CHAPTER  XII. 
Stocks,  Bonds,  Interest  Warrants,  and  Receivers'  Certificates    .          .        209 

CHAPTER    XIII. 
Commercial  Houses — Commercial  Agencies          .....      230 

CHAPTER  XIV. 

Transmission    and    Remittance    of    Money — Money    Orders — Cheque 

Banks — Commercial  Bills — Cable  and  Telegraph  Transfers  .          .     237 


CONTENTS.  VI 1 

CHAPTER  XV. 

PAGE 

Notes — Endorsements — Drafts — Bills  of  Exchange — Notary  Presen- 
tation— Protest — Notice  of  Protest — Checks — Course  of  Check 
through  a  Bank — Cashiers'  Checks — Certificates  of  Deposit — 
Letters  of  Credit — Table  Showing  U.  S.  Treasurer's  Valuation  of 
Foreign  Coins — Table  Giving  Weight  of  Alloyed  and  Pure  Metal 
of  Units  of  Value  of  Principal  Countries 246 

CHAPTER  XVI. 
Interest — Grace — Legal  Holidays        .......     268 

GLOSSARY 277 

INDEX 305 


OF  T 


PRINCIPLES  AND  PRACTICE  OF 

FINANCE. 


PART  I. 

PRINCIPLES   OF   FINANCE. 


CHAPTER  I. 

Introductory — Barter — Value — Barter — Money — Bullion — Metal  Money — 
Fiat  Money — Paper  Money — Government  Regulation  of  Money  and 
Currency. 

IN  order  that  the  subject  of  this  work  "  Finance,"  should 
be  clearly  presented  and  intelligently  read,  it  is  deemed 
necessary  to  point  out,  if  but  briefly,  the  natural  develop- 
ment of  its  different  principles  ;  and  after  the  development 
of  those  principles  has  been  indicated,  their  application  to 
business  and  financial  methods  and  systems  will  be  dis- 
cussed. 

The  various  articles  on  the  principles  of  Finance  are  not 
intended  to  be  exhaustive,  but  simply  to  lay  a  ground- 
work for  the  proper  understanding  of  those  principles  in 
their  application  to  the  business  of  Finance. 

First.  As  to  the  development  of  principles  ;  which  it  is 
well  to  trace  from  their  birth. 


2  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

In  the  earliest  stage  of  human  existence,  when  primitive 
man  secured  or  accumulated  by  effort  or  by  accident 
something  which  was  either  useful  to  or  which  was  desired 
by  others,  and  for  the  possession  of  which  they  were  will- 
ing to  part  with  some  possession,  such  thing  became  val- 
uable, and  the  principle  of  value  was  established. 

So  soon  as  an  exchange  was  effected  of  one  thing  for 
another,  that  minute  the  principle  of  barter  came  into  be- 
ing. It  was  not  possible  however  that  the  possessor  of  a 
particular  commodity  in  excess  of  his  immediate  needs 
should  be  able  to  exchange  that  commodity  for  all  the 
other  commodities  or  things  which  he  desired  ;  resort  was 
therefore  had  to  the  conversion  of  such  surplus  into  some 
intermediate  commodity  which  the  owner  could  use  at  his 
pleasure  in  procuring  what  he  wished,  and  upon  the  ex- 
change of  such  surplus  for  this  intermediate  value  or  com- 
modity, the  third  great  principle  of  finance  and  the  first 
and  chief  function  of  true  money  was  established.  Nec- 
essarily this  intermediate  value  must  be  one  of  as  nearly 
as  possible  staple  and  indestructible  value  and  hence  nat- 
urally would  become  not  only  an  intermediate  value,  but 
also  the  agent  of  divisibility  of  value,  and  by  reason  of  its 
possession  of  these  qualities  it  naturally  became  the  meas- 
ure of  the  value  of  other  commodities  and  the  fourth 
principle,  a  measure  of  value,  arose. 

So  soon  as  this  surplus  product  could  be  converted  into 
value  of  a  permanent  character,  and  thus  made  available 
for  future  use,  an  accumulation  of  value  or  capital  became 
a  fact. 

Credit  was  surely  created  when  the  possessor  of  one 
value  delivered  that  value  to  another,  receiving  at  the 
time  of  the  delivery  a  promise  that  at  some  future  time  an 
equivalent  in  value  would  be  given. 

The  first  charge  made  for  the  use  of  capital  or  credit 
was  "  Interest." 

The  money-changers  were  probably'the  earliest  bankers. 


PRINCIPLES   OF  FINANCE.  3 

They  not  only  changed  money,  but  kept  it  for  others,  and 
loaned  it  at  interest. 

The  simplest  example  of  what  has  since  developed  into 
exchange,  is  where  A  having  a  claim  against  B,  and  owing 
a  similar  amount  to  C,  directs  B  to  pay  to  C,  which  being 
done  both  debts  are  cancelled. 

The  assumption  by  early  kings  of  the  sole  right  to  issue 
coins  and  to  compel  their  circulation,  whether  possessed 
of  the  value  stamped  on  them  or  not,  was  the  beginning 
of  fiat  money,  and  out  of  this  assumption  naturally  grew 
governmental  control  of  both  metal  and  paper  money, 
bankers  and  banks. 

The  money  value  of  things  is  termed  "  Price,"  and 
"  Price  "  has  existed  ever  since  money  has  been  used  as 
a  means  of  expressing  values. 

The  above  constitutes  all  the  real  principles  of  Finance, 
and  on  them,  singly  or  combined,  every  transaction  must 
rest ;  and  to  one  or  more  of  them  every  financial  proposi- 
tion is  deducible. 

We  shall  now  discuss  these  principles  somewhat  in 
detail. 

Barter. — The  simultaneous  and  direct  exchange  of  one 
commodity,  thing,  or  value,  for  another  commodity,  thing, 
or  value,  without  the  intervention  of  an  intermediate  com- 
modity, such  as  money,  or  the  promise  of  some  other 
value  or  commodity,  as  credit. 

Barter  presupposes  a  recognition  of  property  rights,  as 
a  person  would  not  be  likely  to  make  an  exchange  with 
another  except  for  what  he  believed  and  admitted  to  be 
the  property  of  that  person.  This  recognition  of  property 
rights  marks  the  first  step  in  the  moral  development  of 
man  from  the  plane  of  the  lower  animals,  where,  without 
regard  to,  or  recognition  of,  the  rights  of  others,  he  took 
that  which  his  wishes  or  necessities  dictated,  peaceably, 
stealthily,  or  forcibly,  as  occasion  required  or  his  mood 
suggested.  When,  however,  owing  to  climatic  conditions 


4  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

or  the  danger  of  destruction  from  other  animals  more 
powerful  and  ferocious  than  himself,  he  found  it  neces- 
sary for  his  protection  and  preservation  to  live  with  other 
men,  then  a  community  of  interest  was  created,  the  very 
corner-stone  of  which  was  individual  effort ;  but  individual 
effort,  in  order  to  be  put  forth,  must  be  sure  of  its  reward  ; 
this  reward  must  be  recognized  and  accorded  by  others  to 
be  fully  enjoyed,  i.  e.,  property  rights  (value). 

Value. — Before  proceeding  further  with  the  discussion 
of  barter  we  must  define  Value,  the  existence  of  which 
must  be  anterior  to  barter,  although  barter  may  be  the  act 
which  frequently  fixes  the  value  of  a  thing. 

Value — the  amount  of  other  commodities  for  which  a 
thing  can  be  exchanged  in  open  market,  the  ratio  in  which 
one  thing  exchanges  against  others,  the  command  which 
one  commodity  has  over  others  in  traffic, — in  political 
economy  distinguished  from  "  price,"  which  is  worth  esti- 
mated in  money,  while  "value"  is  worth  estimated  in 
commodities  in  general, — the  quantity  of  labor,  or  of  the 
product  of  labor,  which  will  exchange  for  a  given  quantity 
of  some  other  product  thereof. 

Hence,  while  value  is  in  the  first  instance  the  creation 
of  labor — and  nothing  which  Nature  supplies  in  such 
abundance  as  to  require  no  labor  on  the  part  of  man  to 
adapt  to  his  use  has  any  exchangeable  value, — yet  labor  is 
not  the  only  element  in  determining  the  exchangeable 
worth  or  value  of  a  thing,  but  supply  and  demand  are  also 
factors.  As  a  broad  proposition,  however,  the  amount  of 
labor  expended  or  required  in  the  procuring  or  produc- 
tion of  a  given  article,  and  therefore  the  amount  of  labor 
for  which  that  article  can  be  exchanged,  indicates  its  value. 
While  values  are  created  by  labor,  it  does  not  follow  that 
all  labor  creates  values,  consequently  only  labor  producing 
some  commodity  or  conferring  some  good  for  which  man 
is  willing  to  part  with  some  other  commodity  or  service 
need  be  considered. 


PRINCIPLES  OF  FINANCE.  5 

Limitation  of  quantity  and  capability  of  measurement 
are  two  essential  elements  in  order  that  a  thing  may 
possess  value.  Another  requisite  is  that  the  commodity 
have  in  itself  some  quality  or  substance  useful  or  agree- 
able to  man  or  necessary  to  the  maintenance  of  other  life 
on  which  his  depends,  and  by  a  selection  fostered  by 
necessity  and  ranging  over  the  period  of  human  life  these 
intrinsic  qualities  of  things  have  been  discovered  and 
adapted  to  man's  needs,  and  the  possession  of  these  quali- 
ties in  any  substance  constitutes,  if  not  the  greatest,  at 
any  rate,  a  large  portion  of  their  value. 

Barter — Resumed. — While  transactions  in  barter  are 
perhaps  fewer  as  civilization  progresses,  yet  it  is  the  real 
basis  of  all  trade  and  commerce,  and  the  relative  values 
of  commodities  to  each  other,  as  fixed  by  barter,  are  what 
govern  now  just  as  much  as  they  ever  did,  and  although 
the  merchant  sells  his  wheat  or  cotton  for  so  much  in 
money,  that  amount  is  regulated  after  all  by  how  much 
manufactured  product  or  other  commodities  the  wheat  or 
cotton,  for  example,  will  exchange  for. 

In  order  that  even  Barter  should  be  practised,  it  im- 
mediately became  necessary  that  the  respective  persons  to 
the  trade  should  agree  upon  some  measure  of  the  value  of 
the  respective  thing  or  things  which  they  desired  to  ex- 
change. The  ultimate  measure  of  this  value  was  neces- 
sarily the  amount  of  effort  put  forth  in  the  production  or 
procuring  of  the  things  to  be  exchanged, — in  other  words, 
the  labor. 

As  long  as  barter  was  confined  to  individuals  of  the 
same  tribe,  probably  the  article  of  most  general  use  in  the 
tribe  was  accepted  as  such  measure.  Thus,  among  pas- 
toral people,  the  sheep,  horse,  or  cow  was  the  measure  of 
value  ;  whereas,  among  agricultural  people,  a  given  quan- 
tity of  some  cereal  was  doubtless  used  for  this  purpose. 
As  long  as  this  barter  did  not  go  beyond  the  confines  of 
trade — which,  in  its  more  restricted  and  technical  mean- 


6  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

ing,  is  the  dealing  between  individuals  of  the  same  com- 
munity,— a  local  measure  of  value  was  sufficient  ;  but  the 
moment  it  grew  into  commerce — or  the  dealing  between 
communities  or  countries,  or  the  individuals  of  different 
countries  or  tribes, — that  moment  another  and  more  gen- 
erally accepted  standard  became  absolutely  necessary. 

We  have  now  come  to  the  consideration  of  one  of  the 
functions  of  money  which  will  be  treated  more  in  detail 
under  the  head  of  money.  We  have  neither  the  time 
nor  the  inclination  to  trace  the  different  standards  of 
value,  nor  do  we  believe  that  it  could  be  here  done  to 
advantage. 

Metals, being  the  first  commodities  of  general  use  by  all 
peoples  by  natural  selection,  became  the  measure  of 
value. 

In  this  connection  we  naturally  inquire  why  metals 
should  have  been  selected,  as  we  know  there  must  have 
been  good  reasons,  first  why  they  were  selected,  and 
secondly  why  their  use  should  have  continued. 

We  answer :  First,  because  of  their  value — the  large 
amount  of  value  compressed  into  a  small  compass.  Sec- 
ond, their  portability — the  ease  with  which  they  can  be 
taken  from  place  to  place.  Third,  their  comparative  in- 
destructibility, metals  being  the  least  destructible  of  all 
substances  capable  of  receiving  an  impress  marking  their 
value.  Fourth,  their  homogeneity — a  given  weight  of  a 
particular  metal  being,  or  capable  of  being,  made  of  equal 
value.  Fifth,  divisibility — the  quality  of  being  divided 
into  larger  or  smaller  proportions  without  disproportion- 
ate accretion  or  loss.  Sixth,  their  stability  of  value — i.  e., 
the  ratio  in  which  they  exchange  for  other  values  ;  and 
seventh,  cognizibility,  impressibility,  or  coinability — mean- 
ing not  only  a  general  recognition  of  their  commodity 
value,  but  also  the  ability  to  impress  or  stamp  letters  or 
characters. 

These  conditions  are  essential, and  the  metal  possessing 


PRINCIPLES  OF  FINANCE.  7 

most  of  these  characteristics  will  by  a  law  as  certain  as 
that  of  gravitation,  be  chosen  as  the  measure  of  value. 
Mankind  has  found  that  gold  possesses  in  a  larger  degree 
than  any  other  metal  these  essentials,  hence  its  almost 
universal  choice  among  civilized  nations  as  the  measure 
of  value. 

Barter  necessitates  immediate  exchange,  but  it  is  not 
always  either  possible  or  desirable  to  immediately  deliver 
or  receive  the  article  or  articles,  service  or  advantage 
given  or  sought.  Hence  we  naturally  seek  to  convert  the 
product  of  our  labor  into  some  commodity  of  stable,  in- 
destructible, and  well  recognized  value,  with  which  we  may 
at  our  convenience  secure  what  portion  we  desire  of  other 
commodities  or  services.  This  brings  us  to  the  consider- 
ation of  the  divisibility  of  value,  and  on  this  question  it  is 
well  to  be  somewhat  explicit. 

It  is  often  erroneously  asserted  that  money  is  necessary 
for  the  purpose  of  divisibility,  especially  where  the  divi- 
sion is  effected  at  a  time  remote  from  that  of  the  original 
transaction.  The  following  illustration  will  show  that 
such  is  not  the  case : 

A  farmer  takes  to  market  say  a  thousand  bushels  of 
wheat.  This  he  desires  to  exchange  for  other  commod- 
ities. Should  he  receive  in  exchange  for  his  wheat,  at  the 
time  of  delivery,  one  particular  commodity  of  equal  value, 
the  barter  would  be  completed  then  and  there  ;  but  the 
probabilities  are  that  he  would  not  need  only  one  thing, 
but  many,  some  of  which  would  not  be  possessed  by  the 
person  with  whom  he  dealt,  hence  he  would  have  to  act 
as  his  own  distributing  agent,  making  many  transactions 
in  order  to  secure  the  different  commodities  for  which  he 
was  desirous  of  exchanging  his  wheat,  and  probably  not 
getting  what  he  wanted  at  once  or  when  he  wanted  it. 

To  avoid  these  numerous  exchanges,  and  to  economize 
not  only  the  farmer's  time,  but  the  time  of  those  with 
whom  he  deals,  the  merchant  or  distributing  agent  has 


8  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

arisen.  To  the  merchant  the  farmer  sells  his  wheat,  and 
from  him  receives  either  money — an  intermediate  value, 
exchangeable  at  any  time  for  any  of  the  many  values 
which  he  desires  in  exchange  for  such  wheat — or  a  credit 
— improperly  called,  in  reality  an  obligation  of  the  mer- 
chant,— which  he  can  use  as  his  necessities  or  wishes 
dictate  in  the  purchase  of  those  commodities  which  he  de- 
sires. Or  credit  may  have  been  extended  to  the  farmer 
in  anticipation,  or  the  value  of  the  wheat  may  have  been 
advanced  him  in  various  other  values  before  the  wheat 
was  delivered. 

This  certainly  is  the  method  by  which  a  large  majority 
of  the  country  stores  throughout  the  States  are  conducted ; 
and  while  the  intervention  of  credit  or  money  as  a 
medium  of  exchange  and  divisibility  would  technically 
destroy  the  character  of  the  transaction  as  one  in  simple 
barter,  as  a  matter  of  fact  it  only  facilitates  the  disposal  of 
values  and  avoids  the  necessity  of  the  immediate  consum- 
mation of  the  final  exchange,  rendering  it  possible  for  the 
parties  thereto  to  receive  such  commodities  at  such  times 
as  they  desire. 

Inasmuch  as  the  agricultural  products  of  the  world, 
while  produced  during  different  months  in  various  coun- 
tries, are  still,  generally  speaking,  only  produced  in  each 
country  during  about  six  months  of  the  year,  and  as  all 
men  must  subsist  upon  that  which  has  been  produced,  it 
follows  that  man  must  make  provision  during  those  six 
months  for  his  subsistence  and  maintenance  during  the 
other  six  months,  and  the  surplus  then  produced  must  be 
so  exchanged  as  to  provide  him  with  a  credit  from  the 
ending  of  such  season  till  the  produce  of  the  next  season 
is  marketable.  Hence  credits  occupy  so  important  a  posi- 
tion in  commercial  life.  It  may  be  said,  broadly  speaking, 
that,  the  world  over,  man  lives  twelve  months  on  the 
product  of  six  months'  labor,  and  that  in  these  six  months 
he  must  provide  for  the  twelve  months  which  are  to  fol- 


PRINCIPLES  OF  FINANCE.  9 

low.  This,  perhaps,  is  not  true  to  the  same  extent  of 
the  peoples  engaged  in  manufactures  and  distribution, 
which  after  all  are  but  auxiliary  industries  dependent 
for  their  life  upon  those  creative  industries,  of  which 
agriculture,  fisheries,  and  mining  are  the  principal, — 
these  industries  creating  values,  whereas  manufactures 
and  distribution  simply  change  the  form  of,  and  add  to, 
the  value  of  the  raw  material.  Although  what  has  just 
been  said  belongs  more  particularly  to  credit  than  to 
barter,  still,  as  credit  is  but  the  outcome  of  barter  and 
dependent  upon  barter,  it  has  been  thought  best  to  here 
insert  it. 

The  business  of  the  world  is  done  strictly  on  the  basis 
of  barter,  and  the  vast  credits  which  are  extended  are  but 
the  representatives  of  the  enormous  transactions  in  barter ; 
money,  on  account  of  its  insignificant  proportion  to  the 
exchanges  consummated  annually,  forming  but  a  relatively 
small  item  to  credit  in  the  commercial  transactions  of 
the  globe. 

While  a  comparatively  small  percentage  of  the  business 
of  the  world  is  done  by  direct  and  immediate  exchange 
of  one  or  more  commodities  or  values  for  one  or  more 
other  commodities  or  values,  money  or  credits  nearly 
always  intervening  as  a  medium  for  the  purposes  stated, 
yet  inasmuch  as  all  commerce  is  regulated  by  barter, 
money,  which  does  not  and  cannot  in  any  broad  sense 
either  diminish  or  increase  values,  and  is  but  a  tempo- 
rary medium  in  their  exchange,  must  adjust  itself  to  the 
conditions  of  barter. 

Having  heretofore  shown  rather  incidentally  the  relation 
of  money  to  barter,  we  now  proceed  to  a  more  specific 
consideration  of  the  subject. 

Money. — Webster  defines  money  as  : 

First — "  A  piece  of  metal,  as  gold,  silver,  copper,  etc.,  coined 
or  stamped,  and  issued  by  the  sovereign  authority  as  a  medium 


10  PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

of  exchange  in  financial  transactions  between  citizens  and  with 
the  government  ;  also,  any  number  of  such  pieces  ;  coin." 

Second — "  Any  general  or  stamped  promise,  certificate,  or 
order,  as  a  government  note,  bank  note,  a  certificate  of  de- 
posit, etc.,  which  is  payable  in  standard  coined  money,  and  is 
lawfully  current  in  lieu  thereof  ;  in  a  comprehensive  sense,  any 
currency  usually  and  lawfully  employed  in  buying  and  selling." 

Money  is,  first,  a  thing  possessing  a  universally  recog- 
nized intrinsic  value,  but  not  necessarily  of  a  universally 
exchangeable  power  ;  and,  secondly,  money  based  upon 
credit,  t.  *'.,  promises  to  redeem  in  some  commodity, 
usually  gold  or  silver.  For  the  purposes  of  convenience, 
gold  and  silver  and  other  metals,  all  possessing  universally 
recognized  values,  have  been  accepted  as  the  money  of 
civilization,  and  all  paper  money  (credits)  or  promises  to 
pay  are  payable  in  some  one  or  more  of  these  metals.  It 
may  be  well  to  remark  parenthetically  that  while  money 
is  currency,  currency  is  not  necessarily  money. 

All  true  money  being  itself  a  commodity,  possessed  of 
an  intrinsic  value,  used  as  a  means  to  facilitate  barter  or 
the  exchange  of  one  value  for  another,  and  being  always 
of  a  smaller  aggregate  value  than  the  combined  value  of 
the  numerous  commodities  or  values,  the  exchange  of 
which  it  is  called  upon  to  facilitate,  must  adjust  itself  to 
this  greater  combined  value,  rather  than  that  the  greater 
value  of  all  other  commodities  should  adjust  itself  to 
money  ;  although  money,  being  the  standard  of  value, 
the  price  of  other  commodities,  as  measured  by  money, 
changes,  and  not  the  price  of  money.  The  purchasing 
power  of  money  in  the  markets  of  the  world  is  governed 
by  its  commodity  value. 

Hence  it  follows,  should  the  ratio  of  increase  of  money 
be  greater  than  the  ratio  of  increase  of  other  values,  or 
should  a  given  amount  of  labor  produce  a  larger  quantity 
of  bullion,  then  the  purchasing  or  exchangeable  power  of 
money  becomes  less,  and  other  values,  which  are  meas- 


PRINCIPLES  OF  FINANCE.  II 

ured  by  it,  greater,  as  was  illustrated  by  the  discovery  of 
gold  in  California,  when,  owing  to  the  vast  supply  of  gold 
and  the  comparatively  small  output  of  labor  required  to 
secure  it,  the  relation  between  it  and  other  commodities 
was  disturbed,  and  its  exchangeable  value  became  very 
much  less,  and  the  relative  value  of  the  other  commodities 
to  it  very  much  greater.  Should  the  ratio  of  increase  of 
money  be  less  than  the  ratio  of  increase  of  other  com- 
modities, then  the  relative  value  of  money  becomes  greater 
and  the  value  of  all  other  commodities,  compared  with 
this  particular  commodity  (money),  less ;  but  should  the 
other  commodities  maintain  their  relative  value  to  each 
other,  the  holders  of  other  commodities  are  not  -sufferers 
thereby,  as  their  relative  value  to  each  other  is  not  dis- 
turbed, and  the  holder  of  money  is  certainly  just  as  much 
entitled  to  receive  the  benefit  of  its  enhancement  in  value 
as  he  is  liable  to  suffer  the  loss  of  its  depreciation. 

Paper  money,  or  promises  to  pay,  secured  by  a  mort- 
gage of  either  the  income  of  a  government  or  a  compulsory 
deposit  or  retention  by  an  individual  or  corporation  of  a 
certain  percentage  of  bullion,  is  not  and  cannot  in  any 
sense  be  considered  true  money,  but  should  be  designated 
as  currency,  as  it  passes  current  in  lieu  of  money,  and  as  it 
lacks  the  universality  of  value  and  exchangeable  quality 
which  all  true  money  does  possess.  Its  usfulness  as  a 
means  of  facilitating  exchange  or  barter  is  measured  by  the 
knowledge  of  the  acceptor  of  such  currency  of  the  ability  of 
the  issuer  to  redeem  it  in  coin ;  thus  gold  and  silver,  pos- 
sessing as  they  do  a  universally  known  intrinsic  value,  are 
receivable  in  every  portion  of  the  world,  civilized  and  un- 
civilized ;  but  a  legal-tender  note  of  the  United  States,  or 
a  Bank  of  England  note,  would  not  be  received  in  ex- 
change for  values  by  people  ignorant  of  the  ability  of  the 
respective  issuers  or  obligors  to  redeem  such  promises,  or 
to  give  for  such  notes  an  exchangeable  value  proportion- 
ate to  the  value  of  the  commodity  transferred. 


12  PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

Paper  money  is  nothing  more  than  a  promisory  note 
payable  on  demand  in  a  particular  commodity  (money). 
Should  either  the  government  or  the  individual  promising 
to  pay  fail  so  to  do  the  note  would  simply  be  a  piece  of 
writing,  obligating  the  issuer  to  the  payment  of  that  value, 
and  nothing  more,  and  its  value  is  therefore  dependent 
upon  the  ability  of  the  issuer  to  pay. 

One  of  the  chief  uses  of  money  is  as  the  measure  of 
value,  and  in  the  treatment  of  this  aspect  of  the  question 
it  is  impossible  to  avoid  some  discussion  of  whether  there 
should  be  one  or  more  measures  of  value,  and  whether  it 
be  necessary  that  all  money  should  be  a  measure  of  value, 
rather  than  some  particular  kind  of  money.  It  does  not 
deprive  a  particular  kind  of  money  of  its  utility  that  it  is 
not  the  universally  accepted  measure  of  value,  but  only 
deprives  it  of  one  function  and  makes  it  subsidiary  in  one 
respect,  as  a  measure  of  value,  to  the  money  which  is  such 
measure  ;  nor  does  it  deprive  it  of  its  intrinsic  value,  which 
still  remains,  and  is  recognized  in  different  proportions  by 
different  peoples  ;  but  for  the  convenience  of  commerce 
it  is  not  only  best,  but  absolutely  necessary,  that  some 
particular  form  of  money  should  be  the  accepted  measure  ; 
and  that  form  which  possesses  in  itself  the  greatest  intrin- 
sic value,  maintains  the  most  uniform  relative  value,  and 
is  the  most  convenient  for  use,  will  of  necessity  become 
the  standard  of  value,  and  other  moneys  will  have  their 
value  regulated  by  it,  exactly  the  same  as  every  other 
commodity. 

There  can  be  but  one  standard  of  value,  and  that  stand- 
ard is  fixed  not  by  the  laws  of  a  particular  country  or  even 
a  number  of  countries  acting  together,  but  by  the  general 
consensus  of  opinion  of  sellers  and  buyers.  Values  are 
fixed  not  in  the  districts  where  commodities  are  produced, 
but  in  the  large  distributing  centres,  cities,  where  they  are 
fetched  for  exchange,  and  the  values  there  agreed  upon 
are  everywhere  accepted.  The  value  of  a  commodity  is 


PRINCIPLES  OF  FINANCE,  13 

fixed  not  by  its  entire  mass,  the  larger  portion  of  which 
is  consumed  by  its  producers,  but  rather  by  the  surplus 
which  is  exchanged.  Thus  the  value  of  wheat  and  cotton 
in  the  United  States  is  fixed  by  the  price  of  the  surplus 
sold  abroad.  In  other  words,  that  portion  of  a  commodity 
or  product  which  seeks  exchange  in  the  markets  of  the 
world  for  other  commodities  fixes  the  value  of  that  larger 
portion  which  does  not.  Practically  all  of  the  great  con- 
suming countries,  England,  France,  and  Germany,  employ 
the  gold  standard  as  the  measure  of  value.  In  fact,  over 
80  per  cent,  of  international  commerce  is  directly  figured  on 
a  gold  standard  of  value,  hence  gold  maybe  said  to  be  the 
practically  universal  standard  ;  and  even  in  countries  on  a 
silver  basis,  domestic  prices  being  fixed  and  regulated  by 
the  export  prices,  the  silver  coin  is  accepted  as  represent- 
ing so  much  gold  value.  To  repeat, — values  are  fixed  by 
the  exchangeable  worth  of  the  surplus  of  products  in  the 
markets  of  the  world.  Gold  is  the  standard  employed  in 
those  markets,  consequently  the  universal  measure  of 
value ;  and  while  silver,  some  other  metal,  currency,  or 
other  forms  of  credit  may  be  used  as  gold's  representative, 
still  gold  is  the  standard  of  value  in  all  countries  having 
any  foreign  trade,  even  though  that  metal  may  be  prac- 
tically unknown  to  its  citizens. 

Before  discussing  true  money  more  in  detail  it  is  neces- 
sary to  say  a  few  words  about  bullion,  of  which  all  true 
money  is  composed.  The  definition  usually  given  "  gold 
or  silver  in  the  bar  or  lump,  coined  or  uncoined,"  while 
inexact,  and  not  one  which  could  be  accepted  without 
considerable  limitation,  is  perhaps  sufficiently  near  the 
correct  definition  for  our  present  purpose. 

Bullion  is  bought  and  sold  the  same  as  any  other  com- 
modity, the  price  thereof  being  governed  by  :  I,  the  de- 
mand ;  2,  the  supply  ;  3,  weight ;  and  4,  fineness.  The 
price  of  gold  being  always  stationary,  as  it  is  the  measure 
of  value,  its  actual  value  is  determined  by  its  purchasing 


14  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

power  of  other  commodities,  while  the  price  of  silver,  and 
other  less  valuable  metals  used  for  coin,  is  determined  by 
their  relative  value  to  gold.  In  the  case  of  every  metal  it 
is  bought  where  it  commands  the  least  value  and  sold 
where  it  commands  the  greatest. 

The  close  relation  between  the  shipment  of  bullion, 
and  a  high  rate  of  exchange  on  the  point  to  which  the 
bullion  is  sent  leads  many  to  suppose  that  it  is  sent  to 
such  points  to  pay  a  balance  of  trade  against  the  country 
from  which  it  is  shipped.  This  is  not  necessarily  the  case ; 
but  when,  for  any  reason,  the  rate  of  exchange  to  the 
point  of  destination  reaches  the  cost  of  the  shipment  of 
bullion,  obviously  there  is  no  object  in  purchasing  ex- 
change, and  as  bullion  may  be  sent  at  such  times  more 
advantageously,  and  as  most  foreign  houses  at  that  time 
buy,  it  is  then  shipped  in  greater  quantities  than  when 
exchange  is  simply  at  par,  or  in  favor  of  the  country 
shipping  ;  and  while  this  condition  of  exchange  is  looked 
upon  as  favorable  to  its  shipment,  bullion  may  be  shipped 
at  any  time. 

From  the  above  it  is  evident  that  under  ordinary  con- 
ditions the  rate  of  exchange  can  never  be  greater  than  the 
cost  of  the  actual  transportation  of  bullion,  as  it  would 
be  shipped  in  such  event. 

The  business  in  bullion  is  almost  entirely  carried  on  in 
this  country  by  private  bankers,  who  are  known  as  dealers 
in  bullion.  Most  of  the  houses  engaged  in  this  business 
have  agents  in  Europe,  to  whom  they  ship  from  here,  or 
who  ship  to  them  from  Europe. 

The  scope  of  this  work  does  not  warrant  us  in  treating 
money  from  an  historical  standpoint  further  than  is  neces- 
sary to  emphasize  certain  fundamental  principles.  Con- 
sequently, without  any  attempt  to  trace  its  gradual 
evolution  into  its  present  forms,  we  will  consider  the  sub- 
ject as  it  presents  itself  to  us  at  the  present  day  and  shall 
therefore  confine  our  observations  almost  exclusively  to 
the  money  of  the  United  States. 


PRINCIPLES  OF  FINANCE.  15 

Our  money,  like  that  of  many  civilized  nations,  is  now 
divided  into  metal  money  (coins)  and  paper  money  (prom- 
issory notes  payable  on  demand).  Both  metal  money 
and  paper  money  may  be  partly  or  practically  wholly  fiat 
money. 

Metal  Money  or  Coins. — It  is  not  necessary  here  to 
repeat  the  observations  previously  made  as  to  the  peculiar 
adaptability  of  certain  metals  for  use  as  money,  and  the 
advantages  of  some  metals  over  others  for  this  purpose, 
so  we  will  proceed  directly  to  the  general  consideration 
of  this  subject.  In  order  to  consider  which  intelligently 
we  must  understand  the  laws  governing  the  coining  of 
metals. 

Previous  to  the  art  of  coinage,  metals  were  used  by 
weight  and  fineness  for  money,  which  made  it  necessary 
for  the  merchant  to  have  at  his  command  scales  and  often 
crucibles  to  ascertain  the  same.  The  inconvenience  of 
this  system  was  such  as  to  demand  some  change,  and  the 
rational  solution  was  the  division  of  metals  into  small 
pieces  of  convenient  size  and  uniform  value,  with  such 
value  attested  by  some  well  known  and  responsible  power, 
and  no  power  so  fully  met  these  requirements  as  the  gov- 
ernment. Hence,  the  early  history  of  coins  clearly  estab- 
lishes the  fact  that  coinage  was  invariably  regarded  as  a 
prerogative  belonging  solely  to  and  exercised  only  by  the 
sovereign  power  or  government. 

The  art  of  coinage  certainly  does  not  date  back  farther 
than  the  ninth  century  B.C.,  and  the  Lydians  are  sup- 
posed to  have  been  the  first  people  to  have  used  coin 
money. 

For  various  reasons  the  power  to  coin  money  should 
only  be  reposed  in  the  person  or  body  of  most  widely 
known  power,  solvency,  and  integrity,  and  this  is  neces- 
sarily the  state.  There  never  has  been  any  attempt  at 
lawful  individual  issue  of  coin.  It  required  the  govern- 
ment to  properly  regulate  the  weight  and  fineness  and 
vouch  for  the  integrity  of  the  coins  put  in  circulation. 


1 6  PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

At  first  coins  were  very  rude  and  easily  counterfeited 
and  it  was  necessary  to  inflict  severe  penalties  to  guard 
against  this  danger,  but  even  these  penalties  failed  to  deter 
the  counterfeiting,  mutilation,  and  clipping  of  coins,  which 
was  made  very  easy  by  the  practical  absence  of  all  protect- 
ing devices  and  designs,  which  at  the  present  day  tend  to 
make  the  simulation  of  a  well  minted  coin  so  difficult  and 
expensive  as  to  deprive  it  of  any  profit. 

One  of  the  commonest  and  best  known  laws  governing 
coins  is  that  in  order  to  keep  a  coin  in  circulation  the 
bullion  value  of  that  coin  should  be  a  little  less  than  the 
face  value,  in  fact  enough  less,  that  no  probable  fluctua- 
tion in  the  market  price  of  the  metal  of  which  it  is  com- 
posed will  render  the  commodity  value  of  the  coin  greater 
than  its  face  value ;  otherwise  as  soon  as  it  becomes  so,  it 
is  immediately  profitable  to  put  the  coin  into  the  melting 
pot  and  convert  it  again  into  bullion. 

Another  principle  is,  that  a  superior  coin  will  not  circu- 
late side  by  side  with  an  inferior  one.  The  superior  coin 
being  of  greater  value  is  either  hoarded  up  and  retired 
from  circulation,  or,  on  account  of  the  inferior  coin  becom- 
ing the  real  measure  of  value,  is  converted  into  bullion. 
The  reason  of  this  is  very  plain,  as  no  debtor  will  pay  his 
creditor  in  a  better  or  more  valuable  coin  when  he  can 
legally  pay  him  in  an  inferior  and  less  valuable  one.  Used 
as  money  the  value  of  the  superior  coin  is  no  greater  than 
that  of  the  inferior  coin,  whereas  it  is  greater  when  used 
as  bullion.  This  principle  is  known  as  Gresham's  law  and 
furnishes  an  explanation  of  the  difficulty  we  have  had 
during  the  last  few  years  in  keeping  gold  in  circulation 
side  by  side  with  silver. 

The  working  of  this  principle  had  been  previously  illus- 
trated in  this  country  quite  as  clearly  at  the  time  of  the 
discovery  of  gold  in  California,  when,  owing  to  the  enor- 
mously increased  production  of  gold,  its  relative  value  to 
other  commodities  was  diminished,  and  the  prescribed 


PRINCIPLES  OF  FINANCE.  I/ 

ratio  between  gold  and  silver  fixed  by  the  government 
remaining  unchanged,  silver,  the  production  of  which  had 
remained  practically  stationary,  was  undervalued.  Many 
of  our  citizens  who  at  that  time  possessed  silver  coin 
exported  it  or  had  it  melted  up  and  converted  into  house- 
hold articles ;  and  silver  coins  went  practically  out  of  cir- 
culation. 

It  must,  however,  be  borne  in  mind  that  while  an  in- 
ferior coin  if  sufficient  in  quantity  will  drive  the  superior 
out  of  circulation,  it  will  only  circulate  at  about  its  real 
value,  unless  the  difference  between  its  face  value  and  its 
real  value  is  guaranteed  by  some  responsible  government. 

Fiat  Money. — This  is  money  issued  by  a  state  with 
presumable  power  to  enforce  its  acceptance  as  a  legal  ten- 
der in  payment  of  obligations. 

In  this  sense,  of  course,  all  money  issued  by  the  state  is 
fiat  money,  but  in  the  more  restricted  view  only  money 
possessed  of  no  intrinsic  value,  or  of  a  less  intrinsic  value 
than  its  face  value,  is  fiat  money.  And  as  a  large  quota  of 
money  is  not  possessed  of  intrinsic  value  to  the  amount  of 
its  face  value,  the  difference  between  the  two  values  is  fiat 
money.  Paper  money  issued  by  a  government  is  wholly 
fiat  money,  whether  secured  by  a  deposit  of  securities  or 
of  bullion. 

The  issue  of  banks,  unless  made  legal  tender  by  the 
government,  is  not  fiat  money. 

Paper  Money. — While  this  subject  should  be  properly 
treated  under  the  head  of  "  Credit,"  yet  for  the  purpose 
of  convenience,  and  because  as  currency  it  acts  in  lieu  of 
real  money,  it  has  been  decided  best  to  discuss  it  here. 

Until  within  the  last  few  hundred  years,  a  compara- 
tively recent  date  in  the  history  of  money,  paper  money 
was  not  used  in  Europe,  although  the  Chinese  are  supposed 
to  have  used  it  even  before  the  Christian  era. 

Unlike  coined  money,  the  issue  of  paper  money  or 
credits  was  never  held  to  be  a  sovereign  prerogative,  nor 


1 8  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

did  governments  arrogate  to  themselves  the  sole  power 
of  the  issue  of  credits  in  this  form  and  the  consequent 
restriction  of  its  use  by  their  subjects. 

In  the  early  European  history  of  paper  money  its  issue 
seems  to  have  been  exercised  almost  exclusively  by  indi- 
viduals and  corporations. 

If  individuals  and  corporations  could  issue  their  prom- 
ises to  pay  and  exchange  the  same  for  marketable  values, 
why  could  not  a  government  do  the  same?  Many  of  the 
European  governments,  on  account  of  the  frequent  wars 
in  which  their  rulers  were  engaged,  the  incidental  deple- 
tion of  their  treasuries,  and  the  necessity  of  raising  money 
with  which  to  support  large  armies  and  procure  supplies, 
and  having  exhausted  practically  all  other  resources,  were 
compelled  sooner  or  later  to  resort  to  this  as  a  last  relief, 
although  most  have  since  funded  such  issues  of  paper 
money  in  the  shape  of  bonds. 

The  necessities  of  the  European  states,  which  com- 
pelled the  making  or  rather  forcing  of  frequent  loans 
from  their  bankers,  gradually  created  the  device  of  the 
governments  issuing  paper  money ;  but  even  yet  govern- 
ments did  not  deem  it  necessary  to  restrict  the  issue  by 
their  subjects  of  credits  in  this  form,  and  it  is  only  as  an 
extreme  measure  that  any  civilized  government  has  ever 
issued  or  compelled  the  acceptance  of  this  paper  money 
as  legal  tender,  thereby  making  a  forced  loan  and  com- 
pelling the  persons  accepting  such  loans  to  part  with  a 
value  without  receiving  any  interest  for  its  use. 

All  of  the  great  European  nations,  with  a  few  excep- 
tions, while  reserving  to  themselves  this  right,  in  case  of 
extreme  necessity,  as  a  great  Avar,  do  not  at  present  exer- 
cise it,  but  have  practically  done  no  more  than  to  restrict 
its  use  to  certain  corporations  complying  with  conditions 
prescribed  by  them. 

In  this  country  the  early  issues  of  paper  money  by  the 
colonies  previous  to  and  by  the  confederated  colonies 


PRINCIPLES  OF  FINANCE.  19 

during  the  War  of  Independence  were  attended  with  such 
disastrous  results  that  the  Federal  power  issued  no  paper 
money  of  its  own  until  the  early  part  of  the  late  Civil  War. 

Up  to  the  enactment  of  the  National  Banking  Act  in 
1863,  with  the  exception  of  the  time  during  which  the 
United  States  Bank  existed,  all  of  our  paper  money  was 
issued  by  State  banks,  the  different  States  delegating  the 
power  of  issue  to  banks  complying  with  certain  conditions, 
generally  the  maintenance  of  a  certain  percentage  in  bul- 
lion to  the  notes  issued,  etc. 

In  every  representative  government  it  must  be  borne 
in  mind  that  this  right  of  issue  of  credits  is  one  inherent 
in  the  individual,  and  which  he,  through  his  representa- 
tives, has  delegated  to  the  state  or  national  government 
for  various  purposes,  chief  among  which  is  the  securing  of 
greater  uniformity  of  value  and  regularity  of  issue,  under 
conditions  sought  to  make  the  acceptor  of  such  credits  as 
safe  as  possible  in  receiving  them. 

After  an  experience  of  some  seventy  years  it  was  proven 
that  even  States,  owing  to  lack  of  uniformity  of  require- 
ments and  conditions  imposed  by  them  upon  the  banks 
within  their  borders,  could  not  ensure  a  uniform  and  sound 
currency.  Not  but  that  many  of  the  State  laws  were 
models  in  themselves,  but  they  lacked  uniformity.  And 
while  some  were  admirable  and  furnished  an  excellent 
groundwork  for  the  National  Bank  Act,  yet  others  were 
very  illy  conceived  and  even  worse  enforced ;  some  States 
allowing  their  banks  to  issue  circulating  notes  against  real 
estate  and  various  personal  and  other  kinds  of  security. 

It  did  not  take  long  to  establish  the  fact  that  land  was 
not  a  proper  security  for  paper  money ;  for  the  reason 
that  all  issues  of  paper,  in  order  to  circulate  freely,  must 
purport  on  their  face  to  be  redeemable  in  coin,  and  while 
the  land  might  be  of  ample  value  to  secure  the  notes,  yet 
it  could  not  always  be  immediately  converted  into  coin. 
This  fact  was  so  generally  recognized  that  all  of  the  more 


20  PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

conservative  and  successful  State  systems  required  the 
maintenance  of  a  metal  reserve  and  a  thorough  State  super- 
vision of  banks  issuing  circulating  notes  (see  State  Banks). 

Paper  money  to  be  of  any  value  must  be  secured  by 
some  value,  and  when  so  secured  it  is  a  mortgage  on  that 
value,  and  thereby  restricts  its  use,  and  takes  from  the 
channels  of  trade  the  amount  of  the  particular  commodity 
by  which  it  is  secured,  whether  it  be  metal,  some  other 
commodity,  or  real  estate. 

As  the  amount  of  paper  money  must  be  greatly  in  ex- 
cess of  the  metal  reserve  by  which  it  is  secured,  to  make 
its  issue  of  any  use,  if  proper  safeguards  are  thrown 
around  such  issue,  on  account  of  the  increase  in  volume 
(if  needed),  it  may  greatly  facilitate  commerce  and  trade ; 
but  while  the  currency  has  increased  in  volume  it  has  de- 
teriorated in  quality,  and  no  more  value  has  been  created  ; 
and  the  question  narrows  itself  down  to  whether  it  is  bet- 
ter to  have  $100,000,000  in  metal  in  active  circulation,  or 
to  tie  that  amount  of  metal  up  as  a  reserve  to  secure  the 
issue  of  say  $300,000,000  of  paper. 

The  theory  of  course  on  which  paper  money,  secured  by 
a  deposit  of  metal,  is  made  to  circulate,  is  that  all  its 
holders  will  not  wish  its  redemption  in  coin  at  the  same 
time. 

Additional  value  and  security  are  given  to  such  money 
when  a  government  agrees  to  accept  it  in  payment  of  a 
certain  class,  or  of  all  debts  and  dues  to  it  ;  and  this 
additional  value  and  security  is  necessarily  measured  by 
the  proportion  the  entire  issue  bears  to  the  amount  re- 
ceivable in  payment  of  such  debts,  and  the  ability  of  the 
government  to  continue  to  receive  such  money  in  this  way. 

As  yet  we  have  only  considered  paper  money  payable 
in  coin  on  demand.  Now  we  must  consider  inconvertible 
paper  money  issued  by  a  government,  or  paper  which  is 
simply  a  promise  to  pay,  without  any  or  a  very  small 
metal  reserve  to  secure  it. 


PRINCIPLES  OF  FINANCE.  21 

To  this  kind  of  money  there  are  many  objections.  The 
most  potent  of  which  is  that  a  practically  insolvent 
government — if  it  were  not  insolvent  it  would  not  need  to 
issue  this  form  of  money — mortgages  its  future  revenues 
to  redeem  notes  issued  to  provide  for  its  present  indebted- 
ness or  for  advances  made  presumably  for  immediate 
uses.  Next  the  great  incentive  to  over-issue,  and  the 
necessarily  diminishing  value  of  the  notes.  The  placing 
in  the  market  of  a  large  volume  of  government  credits 
unsettles  values,  disturbs  commerce,  and  is  certain  first  to 
beget  over-sanguineness  and  later  on  the  inevitable  de- 
pression which  follows. 

The  issuing  of  demand  obligations  payable  at  the  option 
of  the  holder,  the  first  notice  of  which  option  the  govern- 
ment receives  when  the  notes  are  presented  for  payment, 
cannot  but  be  dangerous  to  that  government's  credit ;  as 
it  is  almost  certain  that  so  long  as  the  government  is 
amply  able  to  meet  its  notes  their  payment  will  not  be 
demanded,  but  the  very  moment  its  inability  is  suspected, 
—the  time  when  it  most  needs  its  available  assets, — then 
the  note  holders  demand  payment.  The  issue  of  govern- 
ment notes  is  generally  effected  only  by  either  the  actual 
restriction  of  the  issue  of  individuals,  or  the  practical 
restriction  by  making  such  issue  unprofitable. 

Again,  the  want  of  elasticity  of  such  a  currency ;  the 
issue  of  which  is  regulated  by  the  necessity  of  the  govern- 
ment and  not  by  the  needs  of  commerce  ;  and  no  govern- 
ment is  in  that  close  touch  with  commercial  life  which 
enables  it  to  increase  such  issue  when  necessary  and  to 
contract  the  amount  thereof  when  not  needed.  In  fact  the 
necessities  of  a  government  generally  prevent  its  acting 
solely  with  a  view  to  the  interests  of  commerce. 

Indeed,  it  seems  a  preposterous  contention  that  the 
debt  of  a  government  should  measure  the  volume  of  the 
people's  currency,  and  that  debt  remain  unpaid  because 
it  might  restrict  the  amount  of  currency  in  circulation. 


22  PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

The  fact  is  that  the  very  existence  of  such  a  currency  is  a 
discrimination  against  the  non-governmental  issue  of 
credits,  and  a  restriction  of  the  power  of  the  utilization  by 
banks  and  others  of  their  credits,  the  United  States 
Government  requiring,  in  order  to  make  a  place  for  its  own 
notes  and  bonds,  banks  to  deposit  in  its  Treasury  United 
States  registered  bonds  selling  at  say  117  in  order  to 
secure  90  per  cent,  of  their  par  value  in  notes,  on  which 
issue  they  must  pay  the  government  taxes  annually,  mak- 
ing the  issue  of  notes  of  so  little  profit  that  few  banks  will 
now  issue  them,  and  in  reality  depriving  banks  of  the  use 
of  one  of  their  most  profitable  rights,  the  use  of  their 
credit  as  currency,  and  absolutely  prohibiting  the  exercise 
of  credits  in  this  form  by  individuals. 

Only  banks  or  bankers  and  men  who  are  in  daily  con- 
tact with  business  life  can  be  in  a  position  to  know  the 
demands  of  trade,  and  the  regulation  of  the  amount  of 
paper  credits  in  the  shape  of  money  is  best  left  under 
certain  restrictions  in  their  hands.  They  should  be  given 
the  power  upon  the  deposit  of  a  certain  percentage  of 
bullion  with  some  central  bank  or  banks  or  depositary 
under  the  supervision  and  partial  control  of  the  govern- 
ment to  issue  paper  money  when  needed,  and  at  their 
option  to  retire  such  issue  and  reclaim  the  bullion 
deposited. 

In  this  connection  it  is  earnestly  suggested  that  no 
good  reason  can  be  shown  why  a  paper  currency  should 
not  be  regulated  by  that  same  law  of  supply  and  demand 
which  governs  all  business  transactions ;  nor  why  the 
government  should  take  from  the  persons  who  are  the 
interpreters  of  that  law  in  all  other  business  relations  the 
interpretation  of  the  law  when  applied  to  currency. 

To  recur  to  the  subject  of  an  inconvertible  paper 
currency.  If  such  can  be  made  a  legal  tender  in  the 
payment  of  the  government's  obligations  to  individuals, 
in  order  to  protect  the  receiver  it  is  necessary  that  he 


PRINCIPLES  OF  FINANCE.  2$ 

should  be  able  to  compel  his  creditor  to  accept  it  in  pay- 
ment of  his  debt  to  that  creditor,  and  to  the  same  extent 
that  the  first  individual  has  been  deprived  by  the  govern- 
ment of  his  rights  to  that  extent  can  he  lawfully  deprive 
his  creditor  of  such  creditor's  rights  against  him.  And  it 
is  in  order  to  prevent  just  this  contingency  arising,  as  well 
as  for  other  reasons,  that  many  contracts  are  made  paya- 
ble in  gold  coin  of  a  certain  weight  and  fineness. 

Postage-stamps,  while  in  no  sense  credits  or  obligations 
to  pay,  but  simply  evidences  of  pre-payment  of  a  service 
to  be  rendered,  yet  as  they  always  can  command  that 
service,  and  as  it  is  a  service  in  which  the  public  stands  in 
constant  need,  are  frequently  used  to  remit  small  amounts. 

Various  forms  of  credit  such  as  checks,  drafts,  notes, 
bills  of  exchange,  letters  of  credit,  certificates  of  deposit, 
cashiers'  checks,  etc.,  greatly  assist,  if  they  do  not  actually, 
in  many  instances,  take  the  place  of  currency. 

In  Queensland  checks  to  bearer  are  used  almost  entire- 
ly in  place  of  money  and  form  the  general  currency  of 
the  people.  This  is  an  example  however  that  we  are 
happily  not  called  upon  to  emulate. 

Government  Regulation  of  Money.— The  regulation 
of  metal  and  token  money  has  always  reposed  in  the  sov- 
ereign power  for  reasons  before  stated. 

The  regulation  of  coinage  and  its  issuance  by  the  mints 
of  the  various  countries  follow  naturally  from  the  exer- 
cise of  similar  powers  in  earlier  times,  as  does  the  issuance 
of,  or  the  restriction  of  the  issue  of  paper  money  by  the 
governments  of  the  present  day  the  issue  of  token  money 
by  the  ancients. 

First  we  will  consider  how  the  government  obtains  the 
metal  which  it  coins,  and  secondly,  how  that  metal  be- 
comes distributed  among  the  people. 

Any  possessor  of  gold  may  deposit  the  same  with  the 
government  and  have  it  converted  into  coin  and  returned 
to  him  minus  a  small  charge  for  refining  where  the  gold 


24  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

is  less  than  y9^  fine.  This  is  practically  an  unlimited  or 
free  coinage  of  that  metal. 

The  government  does  not  only  coin  metal  belonging  to 
others,  but  also  the  bullion  which  it  receives  in  payment 
of  obligations  due  it,  which  it,  in  course  of  time,  distrib- 
utes through  its  disbursing  officers,  banks,  etc.,  in  pay- 
ment of  its  debts,  the  government  paying  out  annually  in 
coin  and  currency  over  $125,000,000  in  pensions  alone. 

The  coinage  of  silver  at  different  times  in  the  history  of 
this  country  has  been  unlimited,  except  for  the  seigniorage 
charge,  which  at  present  consists  of  the  difference  between 
the  commercial  value  of  the  silver  in  the  coin  and  the  face 
value.  Under  the  Sherman  law,  now  repealed,  the  gov- 
ernment bought  about  $50,000,000  of  silver  yearly  at  the 
market  rates  per  ounce,  and  coined  it  at  a  ratio  to  gold  es- 
tablished years  ago.  The  difference  between  the  two  is 
generally  spoken  of  as  the  seigniorage.  At  other  times  the 
coinage  of  silver  has  been,  and  is  now,  limited  in  amount, 
whereas  the  coinage  of  gold  has  always  been  unlimited. 

The  possessor  of  gold  bullion  can,  and  always  since  the 
formation  of  our  government  could,  have  it  coined  ;  and 
there  has  been  no  limit  to  the  quantity,  while  the  con- 
trary is  the  case  with  silver,  the  government  only  coining 
its  own  silver  in  such  quantities  as  it  needs. 

Next  we  must  consider  the  government's  issue  of  paper 
money  and  its  restriction  of  the  issue  of  such  money  by 
others.  This  money  when  issued  by  the  government 
reaches  the  channels  of  trade  in  just  the  same  way  that 
coin  owned  by  the  government  does — that  is,  it  is  paid  out 
in  discharge  of  the  government's  obligations,  frequently 
in  payment  of  bullion  or  coin  furnished  the  government 
by  others  and  by  them  paid  out  to  their  creditors  or  in 
purchase  of  commodities  or  values. 

That  portion  of  paper  money  issued  by  others  and  the 
extent  of  which  issue  is  restricted  by  the  government  is 
first  printed  and  issued  by  the  government  to  the  banks 


PRINCIPLES   OF  FINANCE.  2$ 

on  a  deposit  by  the  banks  with  the  government  of  United 
States  bonds,  as  is  more  fully  described  in  the  condensa- 
tion of  the  National  Banking  Act.  These  bills  are  then, 
by  the  banks,  loaned  or  used  in  the  payment  of  their  ob- 
ligations, or  the  extension  of  their  credits,  and  thus  be- 
come disseminated  among  the  people. 

Neither  the  Federal  or  State  government  nor  any  cor- 
poration or  individual  can  remain  solvent  and  part  with 
money  except  it  or  he  receive  for  the  money  an  equiva- 
lent value.  It  is  true  a  corporation  or  an  individual  may 
lend  its  issue  to  others  on  promises  of  payment,  and 
State,  municipal,  and  county  governments  have  at  times 
issued  their  bonds  in  support  of,  or  have  guaranteed, 
semi-public  and  semi-private  enterprises ;  and  even  the 
United  States  Government  has  guaranteed  and  paid  the 
interest  on  the  bonds  of  certain  railroads,  but  they  have 
never  gone  so  far  as  to  issue  their  money  except  in  pay- 
ment of  their  own  debts  already  incurred,  or  in  the  pur- 
chase of  values.  Nor  is  the  government  guarantee  of  the 
payment  of  national  bank  notes  a  violation  of  this  rule, 
as  at  first  glance  it  might  appear  to  be,  because  the  gov- 
ernment not  only  secured  by  the  institution  of  national 
banks  a  safe  means  of  placing  its  bonds  on  the  market, 
but  by  compelling  a  deposit  of  those  bonds  to  secure 
these  national  bank  notes,  as  well  as  by  the  imposition  of 
a  tax  on  their  circulation,  amply  protected  and  at  the 
same  time  compensated  itself  for  the  risk  assumed.  In 
other  words,  it  made  that  part  of  its  debt,  which  it  com- 
pelled national  banks  to  purchase  and  deposit  with  it  as  a 
condition  precedent  to  operation,  the  security  of  the  cir- 
culating notes  of  these  banks. 

The  government  can  neither  give  away  money  (pensions 
are  considered  a  debt)  nor  loan  it,  and  if  it  did  either  to 
any  great  extent  the  issue  would  become  so  large  as  to 
render  the  small  security  in  the  shape  of  bullion  and  the 
revenues  available  for  the  redemption  of  such  issues  prac- 


26  PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

tically  valueless,  and  the  issue  worthless.  The  govern- 
ment should  receive  equivalent  value  in  some  shape  for 
every  dollar  put  into  circulation  by  it. 

It  has  been  suggested  that  the  government  might  make 
advances  to  certain  classes,  on  different  kinds  of  produce, 
etc. — in  other  words,  go  into  the  business  of  loaning  money 
on  commercial  paper  and  warehouse  receipts.  Bankers, 
merchants,  and  warehousemen  will  do  this  now,  on  good 
security.  Certainly  the  government  could  not  long  con- 
tinue to  do  it  on  any  lesser  security  than  the  bankers, 
merchants,  and  others  are  willing  to  accept.  And  if  it 
did,  would  soon  be  in  a  position  where  it  could  make  no 
further  advances.  And  if  one  class  is  entitled  to  borrow 
money  from  the  government,  why  not  all  classes  ? 

Capital  is  not  and  cannot  be  created  by  printing 
"  greenbacks,"  paper  money,  neither  by  a  government  nor 
by  an  individual,  and  the  usefulness  of  paper  money  is 
measured  by  the  ability  of  the  issuer  to  redeem  such 
promissory  notes  upon  demand.  Should  the  issuer  part 
with  them  without  receiving  an  equivalent  value,  he  places 
himself  in  a  position  where  whatever  security  exists  for 
their  payment  must  soon  be  exhausted,  and  where  there 
is  no  income  to  provide  for  the  unpaid  issue. 

The  necessity  of  government  supervision  and  control  of 
the  issuance  of  both  coin  and  currency  in  the  shape  of 
money  has  previously  been  commented  upon  in  the  article 
on  "  Money,"  and  need  not  be  here  repeated. 

As  the  financial  operations  of  the  government  with 
business  life  are  usually  consummated  not  through  the 
Treasury  at  Washington,  but  rather  through  its  sub- 
treasuries  and  fiscal  agencies  (national  banks,  generally), 
outside  of  mentioning  the  amount  of  money  in  the  Treas- 
ury, it  has  been  thought  best  to  describe  the  operations  of 
a  sub-treasury,  in  preference  to  those  of  the  main  Treasury. 
As  that  in  New  York  is  the  largest  and  most  important,  as 
well  as  fairly  typical  of  the  others,  that  has  been  chosen. 


CHAPTER  II. 

Capital — Credit — Interest — Exchange — Price. 

Capital. — In  order  to  arrive  at  any  true  understanding 
of  the  meaning  of  this  much-used  word,  we  will  have  to 
consider  it,  first,  in  the  broader  definition  accorded  it  in 
political  economy,  and  secondly,  in  the  more  restricted 
sense  in  which  it  is  used  in  commerce. 

In  political  economy  capital  is  that  part  of  the  product 
of  industry  not  needed  for  immediate  consumption,  and 
which  may  be  used  for  the  support  and  maintenance  of 
life  during  a  subsequent  period  of  productivity.  Capital 
is  the  surplus  beyond  the  present  necessities:  in  the  case 
of  an  individual,  of  that  individual ;  in  the  case  of  a  com- 
munity or  state,  of  that  community  or  state.  Capital  is 
the  accumulated  product  of  past  labor  upon  natural 
objects,  over  and  above  the  immediate  needs  of  mankind 
and  the  animal  or  mechanical  labor  which  he  calls  to  his 
aid,  and  which  may  be  used  at  a  future  time.  The  real 
capital  of  either  a  man  or  a  community  is  that  portion  of 
his  property  on  which  he  may  subsist  during  some  future 
period,  or  that  which  he  may  exchange  for  such  subsist- 
ence. Wheat,  corn,  rye,  rice,  and  other  cereals,  cattle, 
hogs,  sheep,  etc.,  wool,  cotton,  and  the  skins  of  wild  ani- 
mals are  practically  the  only  forms  of  capital  whose  value 
is  always  real,  and  not,  as  in  the  case  of  precious  stones 
and  many  other  things,  almost  wholly  dependent  upon 

27 


28  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

their  exchangeable  value  for  the  above-named  necessities. 
Few  circumstances  could  arise  where  these  things  would 
not  be  of  value,  whereas  under  many  circumstances 
metals  or  precious  stones  would  be  of  no  value  to  the  pos- 
sessor. In  fact  they  derive  their  only  value  from  a  surplus 
of  the  necessities  of  life,  the  exchange  of  which  they  are 
largely  used  to  facilitate,  and  as  that  surplus  is  greater  or 
less  their  value  increases  or  diminishes. 

Capital  is  often  described  as  a  moving  force,  and  the 
fact  that  it  is  the  surplus  which  makes  possible  the  con. 
tinued  use  and  development  of  wealth  and  property  by 
providing  food,  raiment,  and  other  necessities,  as  well  as 
luxuries  of  life  during  this  time,  is  one  of  its  distinguish- 
ing features  from  property,  or  wealth,  or  value.  And  yet 
capital  is  property,  capital  is  wealth,  but  it  is  only  that 
part  of  property  or  that  part  of  wealth  which,  by  afford- 
ing man  and  his  agents  subsistence  during  the  period  of 
the  development  and  maturing  of  the  labor  expended 
upon  wealth  or  property,  makes  that  development  possi- 
ble. Capital  as  the  support  of  labor  is  the  active  force, 
acting  on  property  the  passive  object. 

Capital  is  subject  to  the  same  laws  which  govern  the 
whole  universe ;  it  is  created,  matures,  and  passes  away. 
Only  the  most  insignificant  portion  is  of  a  character  which 
renders  its  disuse  without  loss  possible.  Practically  the 
whole  of  capital,  being  composed  of  the  articles  and  com- 
modities necessary  for  the  maintenance  of  life,  and  there- 
fore of  a  nature  not  admitting  of  permanent  preservation, 
must  needs  be  used  in  order  to  supply  labor  with  the 
power  to  re-create  more  capital. 

While  an  individual  may  add  to  his  capital  by  dispos- 
ing of  a  portion  of  his  property,  the  relative  amount  of 
capital  to  property  in  a  community  or  state  cannot  be 
affected  by  any  such  transfer  unless  the  capital  is  fur- 
nished by  some  other  community  or  state  ;  such  trans- 
fers between  its  own  citizens  cannot  alter  the  relation  of 


PRINCIPLES  OF  FINANCE.  29 

capital  to  property,  but  if  beneficial  to  both  persons  it  may 
afterwards  result  in  increased  productivity. 

It  cannot  be  too  strenuously  insisted  that  land  is  not 
capital,  but  that  its  whole  value  is  dependent  upon  its 
adaptability  to  the  use  of  capital  upon  it. 

Secondly,  in  its  restricted,  commercial  use,  capital  is 
either  money  or  what  may  readily  be  converted  into 
money  without  subtracting  from  the  earning  capacity  of 
the  industry  in  which  it  is  invested.  Thus  the  net  earnings 
of  a  factory  after  the  payment  of  all  charges,  or  the  funds 
or  securities,  things  or  values  which  may  be  used  without 
diminishing  its  plant,  is  capital,  but  the  sale  of  its  fixtures 
or  machinery  would  not  be  in  any  sense  capital,  especially 
if  they  were  necessary  to  its  proper  conduct.  This  inter- 
pretation is  so  generally  accepted  that  the  results  of  all 
sales  of  machinery,  fixtures,  or  equipment  are  invariably 
recorded  in  the  books  of  all  properly  managed  companies 
as  belonging  to  their  respective  accounts  and  forming  no 
part  of  capital. 

We  will  then  assume  capital  to  be  the  fund  used  in  the 
actual  conduct  of  a  business,  the  place  or  plant  and  the 
fixtures  or  machinery  necessary  thereto  having  been  paid 
for  previously  or  provided  for  out  of  other  property. 

While  by  many  stock  in  trade  is  regarded  as  capital, 
which  in  the  broader  definition  given  the  word  by  politi- 
cal economists  it  certainly  is,  yet  when  used  commercially, 
and  considered  as  the  surplus  fund  by  which  the  business 
is  conducted  during  the  interval  between  the  purchase 
and  sale  of  this  stock,  such  a  treatment,  while  theoreti- 
cally correct,  is  unwise  and  inexpedient. 

What  ratio  should  capital  bear  to  the  business  trans- 
acted ?  This  is  a  question  which  nearly  every  business 
man  has  at  some  time  asked.  So  much  has  to  be  taken 
into  consideration  in  attempting  an  answer  that  most 
men,  appalled  at  the  task,  do  not  attempt  it.  Certainly 
only  the  most  general  rules  can  be  suggested,  so  much 


30  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

depends  upon  the  nature  of  the  business,  the  conditions 
of  purchase  of  stock  and  the  sale  of  product,  the  time 
given  the  purchaser,  and  the  time  he  in  turn  extends  to 
those  purchasing  from  him  ;  the  variations  in  the  price  of 
both  the  raw  material  and  the  manufactured  product,  the 
rate  of  interest  which  capital  commands  in  the  open  mar- 
ket, the  condition  of  the  country,  and  a  hundred  other 
things  have  to  be  taken  into  consideration  in  answering 
this  question  as  to  any  particular  industry.  Of  course, 
less  capital  is  required  to  conduct  a  commission  business 
than  a  business  where  the  goods  are  purchased  outright 
and  sold  again,  but  even  here  there  must  be  sufficient 
capital  to  conduct  the  business  until  commissions  are 
earned  and  received,  to  make  necessary  advances,  etc. 

In  most  trades  or  businesses  there  is  some  ratio  which 
careful  men  consider  necessary  to  maintain  under  even 
the  most  auspicious  circumstances.  There  should  certainly 
be  enough  capital  in  a  manufacturing  business  to  run  the 
business,  pay  all  expenses,  labor,  etc.,  and  leave  a  moder- 
ate reserve  fund  on  hand,  from  the  time  of  the  purchase 
of  a  stock  until  that  stock  is  made  up,  sold,  and  paid  for. 
Where  the  time  consumed  is  short,  less  capital  is  required 
than  where  it  is  long.  By  way  of  illustration  we  will  take 
a  factory  whose  annual  output  is  $1,000,000,  ten  percent, 
of  which,  or  $100,000,  is  profit.  $500,000  represents  the 
cost  of  raw  material,  and  $400,000  of  labor,  taxes,  insur- 
ance, etc.,  and  which  is  divided  into  four  purchases  of 
stock,  of  four  periods  of  three  months  each.  The  cost  of 
running  the  factory  for  three  months  would  thus  be  $225,- 
OOO,  or  $900,000  annually.  It  would  seem  that  $225,000 
would  be  the  smallest  sum  with  which  such  a  factory 
could  be  safely  and  comfortably  run  ;  and  this  would  in- 
volve turning  over  the  whole  capital  four  times  in  a  year 
to  reach  the  figures  given.  A  great  many  factories,  how- 
ever, are  not  run  on  this  cash  basis,  but  on  a  credit  basis, 
in  which  event  the  owners  must,  of  necessity,  pay  for  the 
use  of  the  capital  of  others  during  the  interval  between 


PRINCIPLES  OF  FINANCE.  31 

the  purchase  of  the  raw  material  and  the  sale  of  the 
manufactured  product. 

In  the  case  of  a  store  carrying  a  stock  of  say  $ioo,ooor 
the  amount  of  capital  is  dependent  upon  the  length  of 
time  required  to  consummate  a  sale  of  the  stock.  In 
most  retail  businesses  the  goods  are  sold  before  the  whole- 
sale merchant  is  paid,  when  the  money  received  from 
their  sale  is  used  to  pay  the  wholesaler,  in  which  case  a 
comparatively  small  capital  is  required.  The  ratio  is 
further  affected  by  the  amount  of  bills  payable  and 
bills  receivable.  Capital  should  always  be  sufficient  to 
allow  for  a  20  per  cent,  depreciation  in  the  value  of  the 
stock. 

Capital  to  be  available  need  not  be  kept  uninvested, 
because  good  investments  are  readily  converted  into 
money  at  a  profit  ;  hence  the  large  holdings  by  business 
men  of  bonds  and  stocks  which  have  a  ready  market. 

Capital,  if  insufficient  for  the  accomplishment  of  the 
object  aimed  at,  is  often  lost,  sometimes  only  partially, 
other  times  wholly.  The  most  fruitful  source  of  bank- 
ruptcy is  the  undertaking  of  too  great  enterprises  with 
insufficient  capital.  Especially  is  this  true  where  the 
enterprise  is  away  from  the  large  money  centres.  On  the 
other  hand  must  be  borne  in  mind  the  danger  of  allowing 
capital  to  remain  inactive,  which  is  attended  in  the  aggre- 
gate with  almost  as  serious  results,  although  perhaps  not 
so  apparent  in  individual  cases. 

Unemployed  capital  enforces  idleness,  which  means  a 
decreased  production  of  values,  consequently  a  diminished 
demand  for  other  values.  Active  employment  of  capital 
on  safe  lines  means  just  the  reverse. 

Credit. — Credit  is  the  belief,  founded  upon  a  promise — 
that  is,  contract,  expressed  or  implied — by  which  the 
possessor  of  a  given  value  surrenders  it  to  another,  with- 
out at  the  time  of  such  transfer  himself  receiving  an 
actual  equivalent,  but  instead  thereof  a  promise,  ex- 
pressed or  implied,  to  deliver  a  stated  value  at  a  future 


32  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

time.  Credit  is  trust,  confidence ;  it  is  a  reliance  upon  a 
written  or  implied  obligation  on  the  part  of  another — a 
trust  in  man's  honesty. 

The  very  first  element  of  credit  would  seem  to  be  the 
conviction  that  the  person  to  whom  a  credit  is  extended 
is  and  will  be  in  a  position  to  fulfil  the  promise  on  which 
such  credit  is  based,  as  no  sane  man  would  extend 
credit  to  a  person  whom  he  knew  to  be  incapable  of  meet- 
ing the  obligation  incurred  ;  this  would  not  be  credit,  but 
benevolence  or  foolishness,  as  the  case  may  be. 

The  importance  of  credit  and  its  proper  regulation  in 
financial  matters  can  hardly  be  too  strongly  dwelt  upon. 
It  is  the  corner-stone  of  all  financial  systems  ;  and  no 
matter  how  much  money  there  is  in  a  country,  there  can 
never  be  enough  to  take  the  place  of  credit.  Hence  any 
impairment  of  credit  causes  more  disturbance  in  commerce 
and  finance  than  the  locking  up  or  taking  out  of  circula- 
tion of  hundreds  of  millions  of  bullion  or  other  values. 

Credit  is  equal  in  amount  to  nearly  90  per  cent,  of  the 
aggregate  of  all  marketable  values,  for  the  reason,  speak- 
ing broadly,  that  credit  will  be  extended  to  that  amount, 
with  the  pledge  of  the  values  as  security,  and  money  is 
only  called  upon  to  do  what  credit  cannot.  Money  (coin) 
is  only  equal  in  volume  in  the  United  States — that  is, 
that  portion  of  it  in  circulation — to  about  3  per  cent,  of 
annual  marketable  values.  The  statements  frequently 
made  to  show  the  rapidity  of  the  circulation  of  money, 
the  most  common  of  which  is  that  the  annual  clearings  of 
the  clearing  houses  of  the  country  aggregate  about 
$62,000,000,000,  would  seem  to  indicate  that  each  dollar 
(the  amount  in  circulation  being  little  more  than  one  and 
a  half  billions,  one  third  of  which  is  currency)  had  changed 
hands  about  forty-five  times  ;  but  when  it  is  remembered 
that  clearing  houses  are  simply  creations  of  banks — them- 
selves emporiums  of  credit — for  the  purpose  of  facilitating 
their  methods  of  setting  off  credits  against  debits,  and 


PRINCIPLES  OF  FINANCE.  33 

debits  against  credits,  it  will  be  perceived  that  it  does  not 
at  all  show  the  rapidity  of  the  circulation  of  money,  but 
rather,  as  compared  with  credit,  what  an  insignificant  part 
money  plays  in  the  business  of  the  nation.  The  only 
function  money  performs  in  the  clearing-house  business  is 
the  settlement  of  balances,  which  average  in  New  York 
less  than  3  per  cent,  of  the  clearings,  and  it  is  probable 
that  a  ratio  of  one  to  twenty  is  maintained  throughout 
other  business  operations,  as  that  is  the  relation  money 
bears  to  credit,  and  there  is  no  good  reason  to  believe 
that  money  circulates  any  faster  than  does  credit, 
especially  if  we  bear  in  mind  what  a  large  part  of  our 
money  (see  Paper  Money)  is  simply  credit. 

In  commerce,  money  as  an  intermediate  value  is  used 
largely  as  the  auxiliary  of  credit,  or,  to  use  a  bookkeeping 
term,  "  to  make  the  petty  cash  disbursements,"  and  to 
make  change  between  values  ;  and  no  matter  how  rapidly 
it  might  be  made  to  circulate,  as  its  circulation  to  be  of 
most  use  must  be  largely  at  those  seasons  of  the  year  when 
practically  the  whole  agricultural  interests  of  a  country  are 
debtors,  and  debtors  to  an  amount  greatly  in  excess  of  the 
whole  currency  of  the  country,  it  is  evident  that  then  it 
can  only  assist  credit. 

To  illustrate  the  credit  system  of  the  country  : 
The  planter  or  farmer  obtains  his  supplies  during  the 
growing  of  his  crops  from  the  factor,  on  credit,  pledging 
the  crops  as  security.  These  supplies  the  factor  has  pur- 
chased from  various  merchants,  on  credit,  securing  such 
advances  or  credit  by  his  paper  (notes).  The  merchant 
obtained  the  same  from  the  wholesale  dealer,  on  credit, 
securing  such  credit  by  a  transfer  of  the  factor's  notes. 
The  wholesale  dealer  bought  the  same  from  the  producer 
or  manufacturer,  on  credit,  either  his  own  or  his  bank's, 
depositing  with  the  seller  his  paper,  or  that  of  others  in 
his  possession, — in  each  instance  the  credit  being  based 
primarily  on  the  crop  to  be  produced  by  the  farmer. 


34  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

When  the  crop  is  grown  and  about  to  be  harvested, 
then  the  large  money  centres  advance  the  local  banks,  on 
a  rediscount  of  paper,  the  sums  necessary  to  harvest  such 
crops,  which  sums  the  local  banks  advance  to  the  farmers, 
and  the  farmers  pay  to  the  laborers,  who  in  turn  pay  it  to 
the  local  tradesmen,  who  reimburse  the  wholesaler,  and 
so  on  until  it  reaches  the  original  holder  of  the  commod- 
ity which  the  laborer  purchased,  and  for  which  he  has 
been  paid  in  money ;  but  this  is  but  a  small  item  in  the 
general  transaction. 

Transportation  companies  now  bring  the  crops  to  mar- 
ket ;  the  factor  gives  the  company  his  check,  which  it  de- 
posits in  its  bank,  a  large  part  of  which  is  consumed,  per- 
haps, to  take  up  advances  made  by  the  bank  during  the 
summer  months.  The  crop  is  sold  by  the  factor,  who 
draws  upon  the  purchaser;  the  factor  deposits  his  draft  to 
his  credit  in  his  bank,  and  after  deducting  from  the  pro- 
ceeds of  the  sale  his  advances,  interest  charges,  insurance, 
etc.,  remits  the  planter  the  balance  to  his  credit,  often  in 
a  check.  The  factor  gives  the  merchant  his  check,  which 
he  in  turn  deposits,  and  draws  his  own  against  in  favor  of 
the  persons  to  whom  he  is  indebted,  and  so  on  until  the 
persons  who  first  extended  the  credit  are  repaid,  and  then 
not  in  money,  but  in  credits,  or  in  the  ownership  of  a 
value,  their  credits  when  obtained  being  largely  used  to 
enable  them  to  purchase  other  values,  which  they  again 
transfer  on  credit.  The  laborers  and  small  tradesmen 
are  practically  the  only  persons  paid  in  money. 

Careful  financiers  and  good  business  men  rarely  extend 
credit  secured  by  anything  less  than  a  real  value  of  great- 
er amount  than  the  credit  given,  the  exception  to  this  rule 
being  in  the  case  of  corporations,  whose  continuance  is  a 
matter  of  considerable  certainty,  and  whose  earnings  are 
capable  of  close  estimate.  The  earning  capacity  of  an 
individual  is  not  a  proper  basis  for  credit,  for  it  may  cease 
at  any  moment. 


PRINCIPLES  OF  FINANCE.  35 

Purchases  of  bonds  are  simply  credits  to  corporations, 
secured  by  their  plant,  franchises,  and  a  first  interest  on 
their  net  earnings. 

Credit  being,  next  to  value  itself,  the  most  important 
thing  a  person  can  possess,  cannot  be  too  carefully 
guarded.  Its  worth  is  so  well  recognized  that  men  are 
anxious  to  purchase  the  credit  of  others  whose  credit  is 
widely  known,  and  banks,  corporations,  and  individuals 
sell  their  credit  to  those  whose  credit  is  not  so  good  or 
generally  recognized.  In  fact,  the  largest  source  of  reve- 
nue of  many  private  bankers  is  a  sale  of  their  credit  in 
various  forms,  such  as  letters  of  credit  and  bills  of  ex- 
change. 

Interest. — Interest  is  the  charge  made  by  the  lender  to 
the  borrower  for  the  use  or  opportunity  to  use  capital, 
money,  or  credit,  and  is  stated  in  terms  of  money.  This 
charge  when  paid  at  the  time  the  loan  is  made  is  deducted 
from  the  amount  of  the  loan  and  is  known  technically  as 
"  discount."  The  rate  of  either  interest  or  discount 
charged  is  called  "  per  cent."  The  sum  on  which  the 
charge  is  made,  the  amount  of  the  loan,  is  the  "  princi- 
pal." 

Interest  is  charged  not  only  on  loans  but  on  debts 
overdue,  whether  converted  into  the  form  of  a  loan  by 
the  consent  of  the  creditor  to  their  payment  at  a  future 
date,  or  when, without  such  consent,  a  debt  remains  unpaid 
after  it  is  due. 

Interest  due  on  debts,  in  the  absence  of  an  agreement 
expressed  or  implied  by  the  custom  of  trade,  is  collectible 
at  the  prescribed  legal  rate,,  and  no  higher  rate  can  be 
collected. 

The  distinction  between  the  current  or  market  rate  of 
interest  and  the  legal  rate  must  be  borne  in  mind.  The 
legal  rate  is  an  arbitrary  one  fixed  by  law,  whereas  the 
market  rate  is  governed  by  the  conditions  and  principles 
about  to  be  explained. 


36  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

The  market  rate  of  interest  is  not  necessarily  governed 
by  the  quantity  of  money  available  in  a  particular  com- 
munity, because  interest  is  not  only  a  charge  for  the  use 
of  money,  which  bears  a  comparatively  small  ratio  to 
capital,  but  is  the  charge  for  the  use  of  capital  itself,  as 
well  as  credit,  and  capital  and  credit  may  be  plentiful  in 
the  same  community  in  which  money  is  scarce.  For  this- 
reason  the  total  amount  of  money  per  capita  in  a  given 
country  is  a  very  slight  factor  in  determining  the  interest 
rate. 

The  rate  of  interest  or  the  price  charged  for  the  use  of 
capital  or  credit  or  money  is  governed  by  the  earning 
capacity  of  money,  capital,  or  credit  when  employed  not 
in  any  one  particular  industry,  but  in  all.  Although  it 
must  be  borne  in  mind  that  the  whole  earning  capacity  of 
capital,  and  in  this  relation  when  the  word  capital  is  used 
it  is  meant  to  include  capital,  money,  and  credit,  must  be 
greater  than  the  rate  of  interest  charged,  otherwise  there 
would  be  no  object  in  the  borrower  employing  capital  and 
paying  out  to  the  lender  the  entire  profit  of  its  employ- 
ment. Consequently  the  earning  capacity  not  only  of 
capital  but  of  man  must  be  taken  into  consideration. 
For  instance,  A,  who  by  the  employment  of  $100,000 
could  make  a  profit  of  $10,000,  would  doubtless  be  willing 
to  pay  5  per  cent,  for  the  use  of  that  $100,000  if  he  were 
content  with  $5000  in  payment  of  his  services  in  the  em- 
ployment of  that  capital  ;  but  C,  who  could  by  its  em- 
ployment make  a  profit  in  his  particular  business  of  not 
more  than  $5000,  would  certainly  be  unwilling  to  pay  the 
whole  amount  of  the  earnings  of  that  capital  plus  his  own 
labor  for  its  employment.  And  C's  refusal  to  pay  so 
high  a  price  for  its  use  would  tend  to  lessen  the  rate  of 
interest. 

Where  capital  is  plentiful  and  the  wage  of  labor  is 
small,  interest  charges  are  low.  Where  capital  is  scarce 
and  the  earning  capacity  of  man  great,  interest  charges 


PRINCIPLES  OF  FINANCE.  37 

are  high.  The  truth  of  this  proposition  is  borne  out  by 
the  rates  of  interest  prevailing  in  older  countries  and  in 
the  newer  countries,  and  even  in  different  sections  of  our 
own  country ;  on  the  Atlantic  seaboard,  especially  in 
the  Northern  and  Eastern  States,  the  market  rate  being 
comparatively  low,  while  in  the  Southern  and  Western 
States  it  is  high. 

The  rate  of  interest  is  further  regulated  by  the  risk 
incurred,  and  the  greater  the  risk  necessarily  the  higher 
the  rate  of  interest.  Competition  is  also  an  important 
element  in  determining  the  rate,  as  is  evidenced  by  the 
fact  that  in  communities  where  practically  the  whole 
available  capital  is  reposed  in  few  hands  the  rate  is  higher, 
because  of  their  monopoly  of  capital ;  while  in  communities 
where  that  capital  is  held  by  many,  all  anxious  to  lend 
and  coming  into  competition  with  each  other,  it  is  neces- 
sarily lower.  In  other  words,  the  law  of  supply  and  de- 
mand is  here  as  potent  as  in  regard  to  any  commodity. 

Another,  if  not  one  of  the  chief  factors  in  determining 
the  rate  of  interest,  is  the  cost  of  the  transportation  of 
values,  the  transmission  of  money  and  credits,  and  the 
ease  and  rapidity  with  which  they  can  be  made,  and  this 
is  certainly  meant  to  include  exchange  between  different 
countries.  The  more  highly  perfected  and  instantaneous 
communication  between  different  countries,  cities,  and 
parts  of  the  same  country  becomes,  the  more  uniform 
must  be  the  rate  of  interest.  For  under  these  conditions 
of  practically  unrestricted  movement,  capital  immediately 
seeks  the  place  where  it  can  command  the  best  price,  and 
this  inflow  necessarily  tends  to  equalize  that  rate  with  the 
rate  prevailing  elsewhere  where  the  risks  are  proportion- 
ately the  same. 

If  the  rate  of  exchange  or  the  cost  of  the  transfer  of 
money  or  credits  is  a  factor  in  determining  the  rate  of 
interest,  it  is  equally  true  that  the  rates  of  interest  pre- 
vailing in  different  places,  when  very  disproportionate, 


38  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

causing  a  rapid  transfer  of  credits  or  money,  also  affect 
the  rates  of  exchange. 

In  relation  to  the  legal  rate  of  interest,  the  principles 
before  stated  apply  with  modified  force  on  account  of 
governmental  interference  with  their  natural  operation, 
and  while  it  is  true  that  in  many  States  there  are  no  laws 
prohibiting  the  collection  of  any  agreed  rate  of  interest 
between  borrower  and  lender,  and  that  the  legal  rate  is 
usually  fixed  not  to  interfere  with  private  contracts,  but 
to  protect  debtors  against  unfair  exactions  on  the  part  of 
their  creditors,  yet  in  other  States  even  the  collection  of  an 
agreed  rate  of  interest  beyond  the  legal  limit  is  prohibited, 
and  the  lender  exacting  such  an  illegal  rate  pays  the  pen- 
alty by  the  forfeiture  of  double  the  amount  of  his  interest. 

Banks,  insurance  companies,  and  other  corporations 
deriving  their  powers  from  Federal  or  State  governments 
are  generally  restricted  by  those  governments  as  to  the 
rate  they  may  charge. 

But  this  is  hardly  the  place  to  enter  into  a  discussion 
of  the  legal  rate  of  interest  prevailing  in  our  different 
States,  the  laws  in  regard  to  which  as  well  as  the  pre- 
scribed rates  differing  very  widely. 

(See  Interest  Rates  of  States, — end  of  book.) 

Exchange. — Exchange  is  one  of  the  most  difficult 
terms  in  finance  to  accurately  and  yet  comprehensively 
define,  but  in  a  general  way  it  may  be  said  to  be  that 
operation  by  which,  through  the  setting  off  of  credit 
against  debit  and  debit  against  credit,  the  actual  transfer 
of  so  much  coin,  bullion,  or  currency  is  avoided. 

Exchange  is  divided  into  Domestic  Exchange,  that  be- 
tween different  portions  of  the  same  country,  and  Foreign 
Exchange,  that  between  a  city  of  one  country  and  a  city 
of  some  other  country,  the  principles  being  exactly  the 
same  in  either  case. 

As  an  illustration  of  a  transaction  in  simple  foreign 
exchange : 


PRINCIPLES  OF  FINANCE.  39 

Suppose  A  in  New  York  owes  B  in  London  $1000,  and 
C  in  London  owes  D  in  New  York  $1000,  then  there  is 
$1000  owing  in  London  to  New  York  and  $1000  owing 
in  New  York  to  London.  Upon  A  in  New  York  paying 
to  D  in  New  York  $1000,  and  C  paying  to  B  in  London 
$1000,  A  of  New  York  has  by  this  transfer  paid  his  obli- 
gation to  B  in  London,  and  C  in  London  has  at  the  same 
time  paid  his  obligation  to  D  in  New  York  ;  but  A  in 
New  York  would  have  no  means  of  knowing  that  C  in 
London  owed  D  in  New  York  a  like  sum,  nor  would  C  in 
London  know  that  A  in  New  York  was  in  debt  to  B  in 
London  in  a  like  amount.  A  in  New  York  goes  to  a 
dealer  in  exchange  (a  banker)  and  buys  a  bill  of  exchange 
on  London  to  pay  his  indebtedness  to  B.  Meanwhile,  C 
in  London  buys  a  bill  of  exchange  (for  the  purpose  of 
this  example,  from  the  same  house,  which  has  offices  in 
both  cities),  to  pay  his  debt  to  D  in  New  York.  The 
dealer  in  exchange,  upon  comparison,  finds  that  his  New 
York  house  has  to  remit  to  his  London  house  $1000,  and 
his  London  house  to  his  New  York  house  a  like  amount  to 
effect  the  payments  for  which  the  bills  were  purchased ; 
but  instead  of  doing  this,  he  simply  pays  at  his  New  York 
house  to  D  the  money  which  A  has  paid  in  for  his  bill  of 
exchange  to  pay  B,  D  having  in  the  meantime  received 
from  London  a  bill  of  exchange  from  C  payable  at  the 
New  York  house.  The  London  branch,  in  like  manner, 
pays  out  to  B,  upon  presentation  of  his  bill  of  exchange 
purchased  by  A  in  New  York,  the  money  paid  in  by  C  in 
London  to  secure  his  exchange  in  favor  of  D  in  New  York, 
the  whole  transaction  being  accomplished  without  the 
transmission  of  one  dollar  across  the  Atlantic. 

The  principle  here  laid  down  applies  with  equal  force 
whether  the  amount  of  the  indebtedness  of  A  to  B  is  the 
same  as  the  indebtedness  of  C  to  D,  the  only  difference 
being  that  should  the  amount  owing  to  London  be  greater 
than  that  owing  to  New  York,  then  New  York  deducts 


4<D  PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

from  the  actual  transmission  of  money,  the  entire  amount 
which  London  owes  her,  and  remits  the  balance,  and  vice 
versa  in  the  case  of  New  York. 

No  matter  how  many  debtors  in  New  York  remit  to 
creditors  in  London,  nor  how  many  debtors  in  London 
remit  to  creditors  in  New  York,  the  amount  of  New 
York's  credits  against  London's  debits  are  offset  against 
New  York's  debits  to  London's  credits,  and  London's 
credits  against  New  York  are  offset  against  her  debits,  and 
only  the  difference  between  London's  debits  less  her 
credits,  the  former  of  necessity  being  greater  than  the 
latter  if  London  is  called  upon  to  remit,  is  sent  to  New 
York,  and  just  the  reverse  in  the  case  of  New  York — that 
is,  the  city  whose  debits  are  greater  than  her  credits  being 
the  one  which  must  remit  to  the  other. 

As  these  debits  and  credits  are  constantly  changing, 
being  at  one  time  in  favor  of  one  city  or  country  and  at 
another  in  favor  of  the  other,  and  there  being  no  specified 
date  of  settlement  of  all  houses  or  dealers  in  exchange,  it 
naturally  follows  that  the  actual  transmission  of  money 
merely  to  pay  balances  is  resorted  to  with  little  regularity. 
In  fact,  herein  comes  the  element  of  premium  and  dis- 
count of  exchange,  so  termed  ;  it  being  always  regulated 
by  the  debtors'  available  supply  of  bullion,  with  which  to 
pay  balances,  the  cost  of  the  transportation  of  that  bul- 
lion from  one  place  to  the  other,  and  by  the  rates  of  in- 
terest prevailing  in  the  two  places. 

As  business  men  are  constantly  incurring  obligations 
due  in  the  respective  cities,  as  soon  as  exchange  sells  at  a 
discount  in  New  York  the  New  Yorkers  buy  in  anticipa- 
tion of  their  wants,  and  when  exchange  is  at  a  discount 
in  London  the  Londoner  buys  for  the  same  reason.  This 
tends  to  equalize  and  steady  the  price  of  exchange.  Of 
course,  some  men  simply  buy  exchange  as  a  speculation, 
purchasing  at  a  discount  and  holding  it  against  the  time 
when  it  can  be  used  at  a  premium.  Nor  is  this  an  abso- 


PRINCIPLES  OF  FINANCE.  41 

lute  tying  up  of  that  amount  of  money,  as  bills  of  exchange 
can  be  used  as  collateral. 

Exchange  between  cities  in  the  same  country  is  gov- 
erned by  the  same  principles,  and  needs  no  further  ex- 
planation than  to  say  that  the  forms  of  the  bills  are  not 
usually  the  same  as  those  used  in  foreign  exchange,  often 
being  simply  a  cashier's  check  on  his  bank,  payable  at 
some  correspondent  institution,  or  a  letter  introducing  a 
depositor  to  a  correspondent  and  certifying  to  the  amount 
of  his  balance,  drafts  against  which  such  correspondent 
pays  and  charges  against  the  writer  of  such  letter. 

While  these  are  the  principles  upon  which  exchange  is 
based,  the  complexity  of  our  relations  is  such  that  com- 
mercial usage  has  so  far  outgrown  these  primitive  princi- 
ples as  to  almost  entirely  obscure  them  ;  in  fact,  they  are 
rarely  remembered,  and  to-day  in  the  money  centres  a  man 
can  buy  a  bill  of  exchange  from  dealers  payable  in  almost 
any  city  in  the  world,  however  remote,  despite  the  ab- 
sence of  credits  as  offsets  to  such  bill ;  but  if  that  city  has 
no  commercial  relations  with  the  city  of  issue,  or  with 
another  city  having  relations  with  the  first  city,  which  is  a 
very  rare  thing,  it  is  not  in  any  sense  a  matter  of  exchange, 
but  simply  the  transmission  of  so  much  money,  of  which 
the  bill  of  exchange  is  simply  a  forerunner,  the  banker  in 
the  city  of  presentation  paying  the  same,  and  in  due 
course  receiving  the  amount  of  the  bill  plus  his  charges 
in  coin  or  bullion. 

This  naturally  leads  to  a  discussion  and  explanation  of 
what  for  a  better  name  might  be  called  "  complex  ex- 
change," as  contradistinguished  from  simple  exchange- 
that  is,  an  exchange  which  is  not  effected  between  city 
and  city,  but  bet\veen  one  place  and  another  through  the 
intervention  of  one  or  more  other  places.  Take,  for  in- 
stance, New  York,  which  effects  most  of  her  exchange  on 
Rio  Janeiro  through  London,  which  is  accomplished  in 
the  following  way  : 


42  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

A  in  New  York  owing  B  in  Rio  Janeiro  $1000,  buys  a 
bill  via  London  ;  C  in  Rio  Janeiro,  owing  D  in  New 
York  $100,  buys  a  bill  on  New  York  via  London  ;  while 
E  in  Rio  Janeiro,  owing  F  $900  in  London,  buys  a  bill 
on  London  ;  and  G  in  London,  owing  H  in  New  York 
$900,  buys  a  bill  on  New  York.  Upon  the  London  house 
paying  F  in  London  $900,  the  Rio  Janeiro  house  paying 
B  in  Rio  Janeiro  $1000,  the  New  York  house  paying  to 
D  $100  and  $900  to  H,  the  debts  of  all  these  persons  to 
each  other  have  been  paid.  In  other  words,  Rio  Janeiro 
uses  the  $1000  to  her  credit  in  London,  payable  from 
New  York,  in  payment  of  her  debt  of  $100  to  New  York 
and  $900  to  London,  while  London  uses  the  $1000  so 
paid  by  Rio  Janeiro  in  payment  of  Rio  Janeiro's  $100 
debt  to  New  York,  which  she  has  purchased,  and  her  own 
$900. 

The  same  laws  that  govern  simple  or  direct  exchange 
also  apply  to  complex  exchange,  and  need  not  be  repeated, 
except  to  say  that  our  credits  in  London  are  applied 
against  our  indebtedness  to  Rio  Janeiro,  and  her  debits  to 
London  are  settled  by  her  claims  against  us. 

Domestic  exchange  is  figured  in  one  currency,  and  is 
consequently  simpler  than  foreign  exchange,  which  has  to 
be  calculated  in  two  currencies,  that  of  the  country  of  the 
purchaser  and  that  of  the  country  of  the  purchasee,  and 
in  the  case  of  complex  exchange  in  three  currencies,  first 
the  currency  of  the  place  of  purchase,  which  must  be 
converted  into  the  currency  of  the  place  where  such  ex- 
change is  payable.  All  foreign  exchange  is  calculated  on 
a  gold  bullion  basis,  i.  e.,  that  an  ounce  or  a  part  thereof 
of  gold  of  a  given  fineness  possesses  exactly  the  same 
value  in  all  parts  of  the  world. 

The  relative  value  of  the  currency  of  each  country  to 
such  gold  bullion  must  be  first  ascertained  before  such 
conversion  from  one  currency  to  another  can  be  made, 
and  this  is  rendered  doubly  necessary  from  the  fact  that 


PRINCIPLES  OF  FINANCE.  43 

the  bullion  value  of  coin  is  generally  less  than  its  face 
value.  Thus  in  remitting  $1000  United  States  money  by 
means  of  exchange  to  Mexico,  assuming  the  transaction 
to  be  one  in  simple  foreign  exchange  between  this  country 
and  Mexico,  Mexico's  currency  being  on  a  silver  basis 
and  ours  on  a  gold  basis,  it  would  be  necessary  first  to 
determine  the  relative  value  of  the  Mexican  silver  dollar 
to  our  gold  coin  ;  how  many  Mexican  dollars  are  the 
equivalent  in  value  of  a  thousand  dollars  United  States 
money.  This  having  been  determined,  the  "  par  of  ex- 
change "  between  the  two  countries  has  been  ascertained. 
Next  is  calculated  the  exchange  premium  or  discount,  as 
the  case  may  be,  existing  in  favor  of  the  one  or  the  other 
country,  which,  in  the  case  of  a  discount,  would  be  sub- 
tracted from  the  cost  of  such  exchange,  and  in  the  case  of 
a  premium  added,  and  vice  versa  in  the  case  of  Mexico 
remitting  to  the  United  States.  Should,  however,  this 
transaction  be  effected  by  way  of  London,  it  would  be 
necessary  first,  on  the  same  gold  bullion  basis,  to  convert 
$1000  United  States  money  into  pounds,  shillings,  and 
pence,  adding  the  premium  or  subtracting  the  discount, 
then  to  convert  the  pounds,  shillings,  and  pence  into  Mex- 
ican money  with  the  discount  from  London  to  Mexico 
subtracted,  or  the  premium  added,  the  invariable  rule 
being  that  the  purchaser  receives  the  benefit  of  the  dis- 
count when  the  exchange  is  favorable  to  him,  and  pays 
the  premium  when  it  is  against  him. 

Owing  to  causes  and  conditions  too  numerous  to  detail, 
the  relative  value  of  one  currency  to  another  is  constantly 
changing,  and  obviously  it  would  result  in  great  confusion 
and  wrong  to  allow  this  relative  value  to  be  fixed  by  a 
few  dealers  in  exchange.  To  avoid  this  confusion,  lack 
of  uniformity,  and  possible  wrong,  as  well  as  to  protect 
both  the  buyer  and  the  purchaser,  houses  known  as 
"arbitrage  houses,"  which  are  the  principal  banking 
houses  doing  an  international  business,  daily  agree  upon 


44  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

such  relative  values,  and  the  values  set  by  them  are 
accepted  by  both  purchasers  and  sellers. 

Foreign  exchange  is  calculated  and  sold  in  the  currency 
of  the  country  where  purchased  and  paid  in  that  of  the 
country  in  which  it  is  payable. 

The  same  rule  applies  in  the  case  of  all  foreign  ex- 
change. It  is  calculated  in  the  unit  of  value  of  the 
country  where  purchased,  and  remitted  in  the  unit  of 
value  of  the  country  where  payable.  In  Germany  it  is 
calculated  in  marks,  in  France  and  Antwerp  in  francs,  in 
Amsterdam  in  guilders.  The  relative  value  of  the  coins 
of  the  principal  commercial  countries  will  be  found  in 
table  "  Relative  Values  of  Moneys." 

The  premium  on,  or  discount  off,  foreign  exchange  is 
not,  as  in  the  case  of  domestic  exchange,  stated  in  per 
cent.,  but  in  an  addition,  in  the  case  of  a  premium  to,  and  a 
subtraction,  in  the  case  of  a  discount  from,  the  relative 
value  of  the  respective  currencies,  viz. :  $4.86^  being  the 
par  of  sterling  exchange,  when  exchange  sells  at  $4.85  it  is 
at  a  discount,  and  in  like  manner  when  it  sells  at  $4.88,  it 
is  at  a  premium. 

Selling  Exchange. — So  far  only  the  buying  of  ex- 
change by  persons  wishing  to  remit  in  discharge  of  obliga- 
tions has  been  treated  of,  but  clearly  if  banks  will 
purchase  or  advance  money  on  drafts,  why  should  not 
dealers  in  exchange  purchase  the  claims  of  persons  hold- 
ing demands  against  others  residing  elsewhere,  instead  of 
waiting  for  these  persons  to  remit?  They  do,  and  this  is 
termed  Selling  Exchange. 

The  volume  of  business  done  in  this  way  is  probably 
greater  than  that  done  in  the  buying  of  exchange,  as  com- 
paratively few  creditors  now  wait  for  their  debtors  to  re- 
mit, but  instead,  by  the  selling  of  their  demands  in  the 
shape  of  exchange,  payable,  as  the  case  may  be,  on  presenta- 
tion, or  at  thirty,  sixty,  or  ninety  days,  they  realize  the 
amount  owing  by  such  debtor  at  once  instead  of  having  it 
tied  up  in  the  shape  of  bills  receivable. 


PRINCIPLES  OF  FINANCE.  45 

Necessarily  the  same  system  of  offsets  of  credits  against 
debits  and  debits  against  credits  above  explained  in  regard 
to  buying,  applies  in  regard  to  selling,  the  only  difference 
being  that  the  dealer  purchasing  the  exchange  occupies 
the  position  of  the  person  from  whom  it  was  purchased, 
and  presents  the  same  through  his  London  agents,  when 
due,  for  payment  to  the  person  against  whom  it  is  drawn. 

Foreign  exchange,  payable  at  a  future  date,  can  only 
be  sold  to  a  dealer  at  a  discount,  as  such  dealer  must  ob- 
viously receive  interest  on  the  amount  of  the  transaction 
from  the  date  of  purchase  to  the  date  of  payment,  else  he 
is  deprived  of  the  use  of  that  amount  of  money  and  the 
same  is  used  by  another  without  any  compensation  ;  he 
has  also  incurred  the  risk  of  being  unable  to  collect  his 
bill  of  exchange  when  presented  for  payment,  which  risk 
ought  not  to  be  assumed  without  his  receiving  therefor  a 
premium  sufficient,  considering  the  financial  standing  of 
the  payee,  to  compensate  him.  It  is  true  that  he  is  usually 
protected  by  the  bills  of  lading  of  the  goods  against  which 
such  exchange  is  drawn,  and  of  which  bills  he  becomes 
the  owner,  but  in  the  case  of  a  thirty-  or  sixty-clays  bill  of 
exchange  this  cannot  apply,  as  the  goods  may  have  been 
delivered  and  used  before  the  exchange  is  presented  for 
payment. 

Further,  there  must  be  taken  into  account  the  probable 
condition  of  the  exchange  market  at  the  time  such  bill 
becomes  due,  which,  owing  to  the  general  uniformity  of 
balances  for  or  against  certain  countries  at  a  given  period 
of  the  year,  can  generally  be  closely  approximated.  If  at 
the  time  of  the  maturity  of  such  bill  it  is  probable  that 
exchange  against  such  country  will  be  at  a  premium,  then 
clearly  the  amount  of  this  probable  premium  must  make 
such  exchange  still  more  valuable  and  necessitate  a  still 
further  premium,  but  should  it  be  probable  that  exchange 
at  said  time  will  be  at  a  discount,  then  the  amount  of  such 
discount  should  subtract  that  much  from  the  price  of 
said  bill. 


46  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

Prime  exchange  is  that  issued  by  houses  of  known  sol- 
vency, whose  bills  are  everywhere  accepted,  and  the  char- 
acter of  whose  credit  is  beyond  question. 

A  large  business  is  done  in  the  buying  of  bills  of  ex- 
change payable  at  a  future  date,  sometimes  as  long  as 
ninety  days,  in  anticipation  of  obligations  then  falling 
due,  in  consideration  of  the  fact  that  exchange  may  be  at 
a  discount  at  the  time  of  purchase,  and  possibly  will  be  at 
a  premium  at  the  time  the  obligations  become  due ;  and 
the  fact  that  most  dealers  are  willing  to  allow  the  pur- 
chaser as  much  interest  for  the  money  from  the  date  of 
purchase  to  that  of  the  maturity  of  the  bill  as  the  money 
commands  in  the  market,  avoids  the  loss  incident  to  ty- 
ing up  that  amount  of  money. 

"Exchange,"  while  originally  and  technically  limited  to 
the  definition  given  in  the  opening  of  this  chapter,  at  the 
present  time  in  commercial  parlance  includes  bills  of  ex- 
change, transfers  by  cable,  and,  in  fact,  the  transmission  of 
demands  of  all  kinds  by  which  money  or  an  order  for  its 
payment  is  made  payable  at  a  place  other  than  the  place 
of  issuance  of  such  demand. 

The  prevalent  impression  thac  a  particular  country  at 
more  or  less  regular  periods  settles  in  gold  the  balance 
due  in  favor  of  some  other  particular  creditor  country  is 
unwarranted  by  the  very  principles  which  govern  ex- 
change as  well  as  by  all  the  facts  deducible  from  the  sta- 
tistics of  the  money  world.  The  reason  why  such  settle- 
ments between  country  and  country  are  not  so  effected  is 
seldom  thoughtfully  considered.  The  fact  that  the  debits 
and  credits  of  the  entire  commerce  of  the  world  must 
equal  each  other,  and  that  it  is  impossible  that  either  can 
be  in  excess  of  the  other,  is  generally  lost  sight  of.  It  is 
axiomatic  to  say  that  debits  and  credits  must  agree.  The 
entire  amount  of  exports  and  imports  of  the  world's  com- 
merce must  be  the  same,  from  the  fact  that  one  country 
must  of  necessity  export  what  another  country  imports. 


PRINCIPLES  OF  FINANCE.  47 

To  maintain  that  the  total  amount  of  debits  and  credits 
could  vary,  or  that  exports  and  imports  could  differ,  would 
be  equivalent  to  saying  that  the  debtor  and  creditor  sides 
of  an  accurately  kept  double-entry  ledger  would  not  be 
the  same. 

In  the  settlement  of  the  balance  of  trade  between  na- 
tions that  balance  is  rarely,  if  ever,  settled  between  nation 
and  nation,  but  only  the  final  balance  on  the  gross  ex- 
ports and  imports  of  the  entire  commerce  of  a  country  is 
settled,  and  ultimately  only  by  those  countries  which  are 
the  final  debtor  countries  paying  such  balance  to  those 
countries  which  are  the  final  creditor  countries.  The  ex- 
cess of  our  entire  credits  over  our  entire  debits,  taking 
our  country  for  the  purpose  of  illustration,  as  a  rule  being 
due  from  the  three  principal  debtor  nations  of  the  world, 
England,  Germany,  and  France,  must,  in  the  absence  of 
some  credit,  equivalent  to  their  own  and  assumed  debit  to 
us,  be  remitted  to  us  in  gold.  But,  as  a  matter  of  fact, 
this  final  credit  to  us,  due  from  our  excess  of  exports  over 
imports,  is  more  than  balanced  by  the  large  holdings  of 
interest-bearing  American  securities  held  by  these  coun- 
tries, and  which  often  more  than  offset  our  credit  on  ex- 
ports over  imports,  and  occasion,  in  addition,  the  expor- 
tation of  large  amounts  of  gold  from  this  country  yearly, 
to  pay  the  balance  which  is  finally  in  their  favor.  It  is 
not  intended  to  assert  that  there  may  not  be  times  when 
one  of  these  countries  on  the  total  of  all  transactions,  in- 
cluding holdings  of  American  securities,  is  in  this  country's 
debt,  but  to  assert  that,  taking  the  three  collectively,  such 
is  not  generally  the  case. 

The  shipment  of  bullion  does  not  necessarily,  nor  even 
generally,  indicate  the  location  of  the  balance  of  trade. 
Because  while  the  balance  of  trade  may  be  largely  in  favor 
of  some  young  country,  that  balance  may  be,  as  explained 
in  the  previous  paragraph,  more  than  offset  by  the  pay- 
ments of  interest  to  countries  commercially  debtor  and  fi- 


48  PRINCIPLES  AND   PRACJ^ICE    OF  FINANCE. 

nancially  creditor,  which  excess  of  sums  due  for  return  of 
securities  must  be  remitted  in  bullion.  It  may  be  more 
truly  said  that  the  shipment  of  bullion  is  an  indication  of 
the  excess  of  the  entire  credits  of  all  countries  against 
the  entire  credits  of  one  particular  country  ;  but  even  this 
is  not  always  true,  because  bullion  is  largely  purchased 
simply  as  a  commodity,  the  same  as  wheat  or  cotton,  the 
purchase  usually  being  made  when  the  relative  value  of 
bullion  to  other  commodities  is  less  than  usual,  and  being 
sold  when  that  relative  value  is  greater. 

The  assumption  is  that  the  value  of  gold  never  changes. 
This  assumption  is  not  absolutely  accurate,  because  while 
the  prices  of  other  commodities  adjust  themselves  to  the 
value  of  gold,  instead  of  the  price  of  gold  adjusting  it- 
self to  the  value  of  other  commodities ;  yet  it  is  perfectly 
clear  that  when  the  relative  value  of  numerous  other 
commodities  is  greater  relatively  to  the  value  of  gold  than 
at  another  given  time,  then  the  buying  power  of  gold  is 
reduced,  and  when  the  relative  value  of  other  commodi- 
ties is  less,  as  compared  with  the  buying  power  of  gold, 
then  the  value  of  gold  is  greater.  The  real  value  of  gold 
is  adjusted  by  the  enormously  greater  value  of  other  com- 
modities ;  and  when  the  value  of  other  commodities  to 
the  value  of  gold  is  greater,  then  gold  which  has  really 
depreciated  will  be  purchased  for  export,  because  at 
that  time  certain  commodities  will  buy  more  gold  than 
when  the  relative  value  of  these  commodities  to  gold  is 
less. 

Price. — Price  is  the  money  measure  of  a  commodity, 
service,  or  thing — that  is,  the  amount  of  money  for  which 
it  will  exchange.  Value  is  the  relation  a  thing  bears  to 
all  other  things,  while  price  is  the  relation  a  particular 
commodity,  service,  or  thing  bears  to  money,  and  money 
only.  In  other  words,  price  is  the  value  of  a  thing  ex- 
pressed in  money.  The  same  principles  which  govern 
value  also  in  a  somewhat  modified  degree  fix  price. 


PRINCIPLES   OF  FINANCE.  49 

Before  discussing  the  price  of  commodities  and  things, 
it  is  necessary  to  make  a  few  brief  remarks  with  regard  to 
the  price  of  labor,  which  is  governed  by  much  the  same 
factors  that  control  the  price  of  commodities,  inasmuch 
as  the  value  of  the  bulk  of  labor  is  measured  by  its  pro- 
ductivity of  commodities.  There  is,  however,  a  class 
engaged  in  the  rendering  of  services  of  a  professional  and 
personal  character,  whose  price  is  fixed  almost  solely  by 
their  reputation,  skill,  or  ability,  and  the  demand  for  their 
services.  The  price  of  labor  is  fixed  not  only  by  supply 
and  demand,  its  productivity,  and  the  interest  charged 
for  capital,  the  wages  received  in  a  particular  industry, 
vocation,  calling,  or  profession,  but  to  a  considerable 
extent  by  the  wages  received  in  all.  The  effect  of  this  is 
to  equalize  the  rewards  of  labor  of  a  like  character. 

While  the  wage  of  labor  is  measured  in  time  and 
money,  the  real  wage  is  the  value  received  for  the  effort 
expended,  and  at  no  time  in  the  history  of  the  world  has 
labor  received  such  substantial  rewards  as  it  does  at  the 
present  day.  The  wages  of  workmen,  the  incomes  of 
business  and  professional  men,  are  greater  now  than  ever 
before.  The  reason  for  this  is  not  far  to  seek.  The 
forces  of  nature,  through  the  application  of  machinery, 
have  become  powerful  auxiliaries  to  man,  and  much  that 
previously  required  the  expenditure  of  manual  force  is 
now  accomplished  by  machinery.  The  result  has  been 
to  enormously  increase  the  productivity  of  labor,  and 
thereby  augment  the  fund  out  of  which  it  is  rewarded.  As 
this  fund  accumulates  the  laborer  becomes  more  indepen- 
dent, industry  more  profitable,  and  the  demand  for  his 
services,  and  the  price,  greater. 

The  statements  in  relation  to  price  apply  entirely  to 
wholesale  prices,  such  as  are  found  in  current  price-lists, 
exchange  quotations,  etc.,  and  have  no  application  to  the 
prices  of  the  retailer,  which  are  governed  by  so  many  con- 
ditions as  to  render  the  principles  stated  often  inapplicable. 


50  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

The  retail  price  of  a  particular  article  is  often  governed 
largely  by  the  reputation  of  the  maker  or  producer,  and 
the  ability  of  the  purchaser  to  pay  the  price  demanded, 
rather  than  by  well  defined  laws,  hence  the  apparently 
unreasonable  variations  in  the  retail  prices  of  various 
articles,  such  as  clothing,  hats,  shoes,  jewelry,  etc. 

Price  presupposes,  first,  the  possession  by  certain  persons 
of  a  surplus  of  some  article,  commodity,  service,  or  thing, 
beyond  their  needs,  and  which  they  desire  to  exchange  ; 
second,  the  existence  of  some  generally  accepted  measure 
of  value,  money ;  without  this  exchangeable  surplus,  and 
this  measure  of  value,  price  is  an  impossibility. 

Those  products  necessary  to  the  support  of  life  are  of 
the  most  certain  and  universally  accepted  value  ;  they  are 
the  only  things  that  man  cannot  do  without,  and  in  case 
of  necessity  he  sacrifices  any  other  form  of  wealth  to 
procure  food  and  clothing ;  consequently  gold,  silver, 
precious  stones,  works  of  art,  and  other  commodities  or 
things  on  which  a  large  amount  of  labor  may  be  ex- 
pended, and  which  form  the  principal  means  of  preserving 
the  values  of  the  surplus  of  agriculture  and  pastoral  pro- 
duction, depend  largely  for  their  value  upon  the  existence 
of  a  surplus  of  the  necessities  of  life. 

Until  a  people  or  country  has  reached  a  degree  of  pro- 
gress in  which  they  have  accumulated  a  certain  surplus  of 
food  and  clothing  products,  that  is,  necessaries  of  life, 
there  is  but  little  use  for  preservative  commodities,  there- 
fore among  such  peoples  their  relatively  insignificant 
value,  value  being  dependent  upon  usefulness.  As  soon 
as  a  substantial  surplus  has  been  accumulated,  so  soon  do 
preservative  commodities  possess  an  increased  price  ; 
consequently  in  the  older  countries,  where  wealth  and 
values  in  the  shape  of  improved  real  estate  and  many  of 
the  comforts  of  life  have  been  accumulated,  rendering  un- 
necessary the  expenditure  of  human  energy  for  this  part 
of  wealth,  and  allowing  thereby  a  larger  expenditure  of 


PRINCIPLES  OF  FINANCE.  51 

energy  for  production,  the  surplus  of  food  and  clothing 
products  would  yearly  become  greater  than  in  the 
younger  countries,  where  a  larger  part  of  labor  must  be 
expended  for  the  procuring  of  shelter,  furniture,  etc. 

To  minimize  this  yearly  increasing  surplus  of  necessa- 
ries in  older  countries,  recourse  is  had  to  diversity  of 
industry — a  larger  number  of  individuals  are  employed  in 
the  production  of  works  of  art  and  the  manufacture  of 
articles  of  personal  adornment  and  the  rendering  of 
various  services  for  which  there  is  no  need,  and  no  surplus 
to  pay  for,  in  more  primitive  communities. 

The  progress  of  mankind  means  the  accumulation  not 
only  of  a  surplus  which  may  be  expended  for  his  mental 
and  moral  elevation,  but  also  a  decrease  in  the  amount  of 
labor  necessary  to  make  provision  for  the  purely  bodily 
and  material  wants,  hence  the  price  of  what  may  be 
termed  necessities  of  life  must  decrease  in  price.  As  the 
surplus  of  the  necessities  of  life,  which  are  practically  all 
of  a  perishable  nature,  increases,  the  necessity  of  means 
for  converting  that  surplus  likewise  increases,  and  prices 
of  the  commodities  or  things  best  adapted  for  this  purpose 
are  necessarily  enhanced,  while  prices  must  necessarily 
continue  to  decrease  for  those  products  the  surplus  of 
which  is  yearly  growing  greater,  as  long  as  this  dispropor- 
tionate increase  between  the  different  classes  of  com- 
modities continues  in  its  present  ratio.  This  continued 
disproportion  however  seems  improbable  in  view  of  the 
well  known  economic  law  that  both  capital  and  labor  will 
naturally  seek  the  more  and  leave  the  less  remunerative 
fields.  This  rush  of  capital  and  labor  to  very  profitable 
enterprises  soon  creates  a  surplus  of  the  thing  or  service 
which  previously  commanded  a  high  price  on  account  of 
its  limited  supply,  and  by  the  withdrawal  of  capital  and 
labor  from  the  hitherto  unprofitable  employments,  the 
volume  of  those  products  is  reduced,  and  the  demand 
correspondingly  increased.  This  system  of  economic 


52  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

adjustment  is  going  on  constantly,  and  tends  to  the  pres- 
ervation of  fair  relative  values  and  prices. 

The  following  factors  control  the  price  of  articles  and 
commodities :  first,  cost  of  production,  which  includes 
labor,  capital,  and  interest ;  second,  transportation  and 
distribution  ;  third,  supply  and  demand  ;  fourth,  compe- 
tition and  combination  ;  fifth,  artificial  restraints  of 
trade. 

1.  Cost    of    Production.      The   cost    of    production    is 
measured,  first,  by  the  amount  of  capital  necessarily  em- 
ployed in  the  production  of  a  given   product.     It  makes 
no  difference  whether  the  capital  be  owned  by  the  pro- 
ducer  or   is   borrowed.     If   possessed,    its    usefulness   is 
measured  by  the  rate  of  interest  it  could  produce  other- 
wise invested.     If  borrowed,  its  cost  is  measured  by  the 
charge   made    for   its    use.     The   wage   of   labor,    taxes, 
insurance,    and    compensation   of  employer  are   likewise 
elements  of  cost. 

The  more  perfect  and  general  becomes  the  use  of 
machinery,  the  more  certain  and  speedy  the  means  of 
transportation — in  other  words,  the  greater  becomes  the 
supply,  or  the  less  effort  required  to  secure  it,  the  lower 
prices  must  go.  The  whole  aim  and  trend  of  civiliza- 
tion for  the  last  two  hundred  years  has  been  in  this 
direction. 

2.  Transportation    or    Procurability.      Price    is   further 
governed  or  modified  by  means  of  transportation  and  dis- 
tribution, which  practically  tend  to  the  procurability  of 
the  article  or  commodity,  and  no  matter  how  limited  the 
supply  or  great  the  demand,  if  a  particular  commodity  or 
thing  is  produced  at  a  place  in  excess  of  the  local  demand 
for  it,  and  no  means  of  transportation  are  provided  for  its 
carriage  to  points  of  demand  where  the  supply  is  inade- 
quate, the  price  of  sale  is  fixed  at  the  place  in  which  it 
can  be  sold.     There   can   be  no   question  that   corn  and 
wheat,  prior  to  the  opening  of  the   Erie  Canal  or  to  the 


PRINCIPLES  OF  FINANCE.  53 

establishment  of  our  interoceanic  lines  of  railway,  pos- 
sessed all  the  food  values  they  now  do,  but  in  the  absence 
of  means  of  transportation,  being  produced  greatly  in  ex- 
cess of  the  needs  of  their  local  consumers,  the  surplus  was 
a  practical  waste,  owing  to  the  prohibitory  transportation 
charges  incident  to  the  carriage  of  this  surplus  by  the 
primitive  means  afforded  by  wagons  and  pack-horses. 
The  cost  of  transportation  must  necessarily  be  deducted 
from  the  price.  Thus  wheat  sells  at  Omaha  less  its  car- 
rying charges  to  Chicago,  in  Chicago  less  its  carrying 
charges  to  New  York,  in  New  York  less  its  carrying 
charges  to  Liverpool.  This  statement  is  based  on  the 
assumption  that  there  is  a  surplus  of  wheat  in  Omaha 
over  Chicago,  a  surplus  in  Chicago  over  New  York,  and 
a  surplus  in  New  York  over  Liverpool.  If  through  ex- 
cessive purchases  Liverpool  should  acquire  this  surplus, 
and  some  of  the  other  cities  a  deficiency,  then  the  condi- 
tions would  be  altered  and  the  price  in  the  city  suffering 
from  the  deficiency  would  be  plus  that  of  the  city  enjoying 
a  surplus.  In  other  words,  the  price  of  wheat  in  the  place 
where  there  is  an  insufficient  supply  is  the  price  in  the  city 
where  there  is  a  surplus,  plus  the  carrying  charges  between 
the  two  places. 

The  building  of  railways,  the  opening  of  canals,  the 
establishment  of  lines  of  ocean  steamers,  putting  the 
whole  world  in  communication,  and  opening  the  markets 
of  the  old  world  to  the  produce  of  the  new,  and  the  mar- 
kets of  the  new  to  the  manufactures  of  the  old,  have  all 
tended  to  increase  the  supply  where  needed  of  both  food 
and  clothing  products,  and  to  reduce  their  price  in  the 
markets  of  the  world. 

Distribution  is  a  necessary  part  of  the  cost  of  transporta- 
tion, in  fact  distribution  itself  is  one  element  of  trans- 
portation ;  consequently  the  charges  of  factors,  merchants, 
middlemen,  brokers,  insurance  companies,  and  others,  all 
of  whom  render  services  incident  to  the  transportation  or 


54  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

distribution  of  commodities,  become  an  inherent  part  of 
their  cost  and  an  element  in  fixing  the  ultimate  market 
price. 

3.  Supply  and  Demand.  These  terms  are  so  intimately 
connected  as  to  be  practically  inseparable.  By  supply  is 
meant  only  the  available  supply,  and  not  the  total  mass 
of  a  given  product,  a  large  part  of  which  under  certain 
conditions  may  be  unavailable  ;  thus,  if  some  country 
should  have  a  surplus  of  wheat,  and  that  surplus  could 
not  be  brought  into  the  markets  of  the  world,  it  would 
not  be  available  and  would  not  affect  the  market  price  of 
the  available  supply.  By  demand  is  meant  the  effective 
demand  ;  that  is,  the  demand  of  persons  in  a  position  to 
give  an  exchangeable  value  for  the  value  they  desire  to 
possess. 

Supply  is  the  measure  of  quantity  ;  demand  is  the 
measure  of  effective  desire.  Generally  speaking,  where 
the  supply  is  large  the  relative  demand  is  reduced  and 
the  price  of  the  product  is  consequently  lowered,  but  even 
though  the  supply  should  be  larger  than  formerly,  should 
the  demand  increase  in  like  ratio  the  price  is  maintained  ; 
again,  while  ordinarily  a  decrease  in  supply  would  mean 
an  increase  in  price,  this  is  only  true  where  there  is  a  cor- 
responding increase  in  demand.  It  may,  and  often  does, 
happen  that  a  decreased  supply  going  hand  in  hand  with 
a  decreased  demand  means  a  stationary  or  even  falling 
price.  This  is  especially  true  of  articles  dependent  for 
their  sale  upon  the  taste  or  caprice  of  the  purchasing 
public,  such  as  textile  fabrics  of  particular  patterns.  The 
desire  to  possess  them  having  decreased,  even  though  their 
supply  may  have  diminished  in  greater  ratio,  they  become 
practically  unsalable  or  command  but  little  price. 

Low  prices  for  food  and  clothing  products  show  beyond 
dispute  that  they  are  plentiful,  and  that  it  is  desired  to 
preserve  the  value  of  their  surplus  production.  Plenty  is 
surely  cause  for  congratulation,  perhaps  not  to  the  pro- 


PRINCIPLES  OF  FINANCE.  55 

ducer  of  these  commodities,  who  may  be  compelled  to 
take  a  low  price  for  them,  but  if  he  will  insist  upon  pro- 
ducing what  the  world  already  has  a  full  supply  of,  he  has 
only  himself  to  blame  for  a  waste  of  effort. 

High  prices  for  food  and  clothing  are  an  infallible  indica- 
tion of  scarcity,  and  show  that  there  is  but  little  surplus 
to  be  converted  into  more  permanent  forms  of  value,  and 
while  this  condition  may  be  cause  for  rejoicing  to  the 
food  and  clothing  producers,  it  is  cause  for  apprehension 
and  discomfort  to  all  others. 

Where  the  price  of  a  product  is  insufficient  to  pay  the 
producer  a  fair  rate  of  interest  on  the  capital  invested  and 
a  reasonable  wage  for  his  labor,  it  is  evident  that  there  is 
either  little  demand  for  his  product,  or,  what  to  him  is 
equally  bad,  an  excessive  supply  ;  because  the  rewards  of 
labor,  whether  they  be  to  the  employer  or  employee,  tend 
practically  to  the  same  level  in  all  industries,  of  course 
measured  by  the  productivity,  skill,  dexterity,  and  rarity 
of  the  labor  employed. 

4.  Competition  and  Combination.  As  civilization  ad- 
vances and  population  becomes  more  dense,  competition 
increases  owing  to  the  larger  number  of  producers.  This 
increased  production  necessarily  decreases  the  price  of  the 
product,  and  owing  to  the  very  large  number  of  small 
proprietors  engaged  in  certain  classes  of  industry,  prin- 
cipally food  and  clothing  products,  renders  combination 
between  such  producers  limiting  production  practically 
impossible.  In  many  products  competition  has  become 
so  fierce  as  to  leave  but  little  profit  to  either  the  producer 
or  the  distributing  agent. 

Combination,  which  is  the  antithesis  of  competition, 
when  applied  to  articles  and  commodities  is  known  as 
trusts  ;  when  designed  to  limit  the  supply  and  to  increase 
the  wages  of  labor,  it  takes  the  form  of  trades  unions 
and  other  labor  organizations. 

When  applied  to  commodities,  combination  or  monopoly 


56  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

is  generally  practicable  only  in  relation  to  articles  requir- 
ing for  their  production  a  large  amount  of  capital  in  the 
hands  of  a  comparatively  few  corporations  or  individuals, 
who  may  readily  combine  to  limit  the  output  of  its  differ- 
ent members  ;  hence  these  trusts,  monopolies,  or  combina- 
tions are  generally  confined  to  manufactured  articles,  and 
in  this  country  are  rendered  doubly  effective  by  the  large 
import  duties  imposed  on  many  manufactured  articles, 
thereby  giving  a  practical  monopoly  of  the  domestic 
market  to  the  home  manufacturers  ;  but  in  the  absence  of 
such  import  duties  a  combination  to  be  effective  would 
have  to  embrace  all  the  manufacturers  of  the  world  pro- 
ducing that  article. 

Competition  necessarily  reduces  prices ;  combination 
is  designed  to  increase  them.  The  law-makers  of  the 
Federal  Government  and  of  the  States  have  considered 
combinations  so  inimical  to  the  general  welfare  as  to  pass 
most  stringent  laws  against  agreements  or  contracts  in 
restraint  of  trade,  and  to  refuse  to  enforce  them. 

5.  Artificial  Restraints  of  Trade,  by  which  is  meant 
interference  either  by  governments  or  individuals  with  the 
natural  laws  and  conduct  of  trade,  necessarily  affect  the 
price  of  the  article  upon  which  that  interference  is  exer- 
cised. Governmental  restraints,  whether  they  consist  of 
the  licenses  which  a  city  requires  the  vendors  of  various 
kinds  of  merchandise  to  purchase,  the  internal  revenue 
taxes  levied  by  the  Federal  Government,  or  the  import 
duties  imposed  by  the  same  power,  add  to  the  price  of 
the  article  on  which  they  are  imposed,  and  this  additional 
price  must  be  paid  by  each  subsequent  purchaser.  In  the 
case  of  imported  commodities  on  which  there  is  an  import 
duty,  the  import  price  is  the  price  of  the  country  of  ex- 
port plus  the  duty.  In  some  classes  of  manufactured 
articles  where  the  profit  is  great,  it  is  sometimes  the  cus- 
tom of  merchants  to  make  one  price  to  their  home  buyers 
and  another  to  their  foreign  purchasers,  in  order  to  reach 


PRINCIPLES  OF  FINANCE.  57 

a  market  from  which  the  duty  would  exclude  their  goods. 
Obviously,  however,  this  reduced  price  for  export  goods 
can  enable  goods  to  reach  the  desired  market  only  where 
the  profit  is  large  enough  to  admit  of  great  reduction 
from  the  home  price  and  where  the  duty  is  comparatively 
small.  In  the  case  of  such  staple  commodities  as  food 
products,  and  the  great  bulk  of  clothing  products,  espe- 
cially the  cheaper  grades,  if  there  is  any  difference  between 
the  home  and  export  price  it  is  so  slight  as  to  amount  to 
practically  nothing,  and  the  cost  to  the  importer  is  nearly 
always  the  price  prevailing  in  the  country  of  export  plus 
import  duties,  transportation,  and  insurance.  Sometimes 
foreign  merchants  in  order  to  dispose  of  their  surplus  or 
old  stock,  will  sell  to  foreign  buyers  at  a  much  lower  price 
than  to  domestic,  sooner  than  reduce  the  selling  price  of 
their  products  in  the  home  market. 

Individual  restraints  of  trade  usually  consist  of  the 
purchasing  by  one  or  a  number  of  men,  of  a  quantity  of 
a  given  product  largely  in  excess  of  their  legitimate  wants 
or  expectations  of  exchange.  In  common  parlance  this 
is  known  as  a  "  corner/'  One  or  more  men  purchase  the 
available  supply  of  a  particular  commodity  and  thereby 
are  able  to  demand  whatever  price  they  choose  from 
buyers.  While  this  may  effect  a  temporary  rise  in  the 
price  of  the  product  "  cornered,"  it  is  impossible  that  it 
can  permanently  affect  either  its  value  or  its  price,  be- 
cause its  only  worth  to  the  possessors  is  an  exchangeable 
one,  they  possessing  an  amount  largely  in  excess  of  their 
own  needs,  and  of  necessity  being  compelled  to  soon  dis- 
pose of  their  holdings. 

Effect  of  Standard  of  Value  on  Price.  By  many  it  is 
contended  that  what  they  term  the  demonetization  of 
silver  and  the  consequent  making  of  gold  the  single 
standard  of  value  has  led  to  a  decrease  in  the  price  of 
commodities  and  a  consequent  increase  in  the  price  of 
gold. 


58  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

In  order  to  sustain  this  contention  it  is  necessary  to 
show  that  gold  has  not  been  practically  the  sole  universal 
standard  of  value  for  the  last  hundred  years,  and  that  the 
alleged  demonetization  of  silver  had  resulted  not  only  in 
the  restriction  of  its  legal-tender  quality,  but  had  likewise 
deprived  it  of  its  value  as  a  commodity,  and  had  been  the 
sole  cause  of  its  relative  decrease  in  value.  This  will 
probably  not  be  attempted.  It  would  be  further  neces- 
sary to  prove  that  the  available  ratio  of  gold  to  the  com- 
merce of  the  world  had  not  been  maintained,  or  that  the 
demand  for  gold  as  a  circulating  medium  had  increased 
out  of  proportion  to  its  production,  because  as  a  standard 
it  simply  bears  an  abstract  relation  to  other  commodities. 
It  could  only  as  a  measure  of  value  itself  increase  in  value 
and  the  things  measured  by  it  decrease  as  it  became  the 
preservative  of  value,  not  the  measure  of  it.  Again  must 
be  considered  the  fact  that  even  if  the  proportion  of  gold 
to  other  commodities  has  not  been  maintained,  this  fact 
has  been  more  than  offset  by  the  various  devices  brought 
into  operation  by  governments,  bankers,  and  financiers, 
by  means  of  which  the  representatives  of  gold  in  the 
shape  of  paper  money,  credits,  bills  of  exchange,  etc., 
have  been  greatly  augmented  and  the  use  of  the  metal 
itself  as  an  actual  medium  of  exchange  has  been  mini- 
mized. It  would  be  further  necessary  to  show  that  other 
preservative  values  had  decreased  in  amount  and  that  a 
greater  burden  and  therefore  a  larger  demand  for  gold 
as  a  preservative  commodity,  which  is  its  most  restricted 
use,  had  ensued.  This  in  the  face  of  the  obvious  accumu- 
lation of  wealth  in  other  preservative  forms  it  is  impossi- 
ble to  prove.  We  may  therefore  conclude  that  whether 
there  be  one  or  more  standards  of  value  (it  is  in  this  work 
contended  that  there  can  be  but  one  standard  of  value) 
the  relative  value  of  commodities  to  each  other  is  not 
thereby  changed. 

In  this  relation  it  should  be  remembered  that  the  tend- 


PRINCIPLES  OF  FINANCE.  59 

ency  of  finance  during  the  last  century  at  least  has  been 
toward  the  restricted  circulation  of  metals  as  the  media  of 
exchange,  and  in  the  direction  of  the  storing  of  those 
metals  and  the  issuing  against  them  of  currency  or  credits 
in  excess  of  the  bullion  value  of  the  metals,  and  the  secur- 
ing of  the  deficiency  in  amount  between  the  market  value 
of  the  metal  and  the  face  value  of  the  currency  by  the  de- 
posit of  other  credits,  principally  government,  state,  and 
municipal  obligations.  In  other  words,  these  last-named 
obligations  have  come  to  the  assistance  of  the  metals  as 
a  basis  for  the  media  of  exchange,  and  have  tended  to  min- 
imize the  actual  use  of  metals,  whose  money  use  in  most 
civilized  countries  is  now  principally  as  one  of  the  bases 
of  currency. 

While  gold,  in  common  with  other  preservative  com- 
modities, has  increased  in  relative  value  to  food  and 
clothing  products,  as  the  surplus  of  these  products  became 
yearly  greater,  its  increase  has  not  been  so  great  as  that 
of  other  preservative  values.  The  price  of  government, 
state,  municipal,  corporate,  and  individual  credits  has  in- 
creased in  a  much  greater  ratio,  bonds  bearing  a  rate  of 
interest  which  enabled  their  makers  to  dispose  of  them 
at  par  fifty  years  ago  would  now  sell  at  over  200.  Capital 
generally  is  so  plentiful  that  nearly  all  states  and  countries 
have  reduced  the  legal  rate  of  interest,  and  have  been  en- 
abled repeatedly  to  fund  their  interest-bearing  securities 
in  others  bearing  a  lower  rate.  This  increase  is  not  con- 
fined to  securities  and  credits,  but  pertains  to  practically 
every  commodity  or  article  by  which  value  can  be  pre- 
served. The  obvious  reason  for  this  enhanced  value  of 
preservative  commodities,  credits,  and  securities  is  the 
enormously  increased  supply  of  the  necessities  of  life, 
owing  largely  to  the  rapid  development  of  new  areas  and 
the  greatly  reduced  cost  of  production. 


PART  II. 

PRACTICE   OF   FINANCE. 

r 

CHAPTER  I. 

Money  and  Currency  of  the  United  States — The  New  York  Sub-Treasury. 

Practice. — In  the  succeeding  articles  the  application  of 
the  principles  previously  described,  it  is  assumed,  will  be 
readily  determined  by  the  reader,  without  the  writer 
pointing  out  the  particular  principles  involved  in  each 
kind  of  business  discussed. 

Money  of  the  United  States. — The  money  of  the 
United  States  consists  of  gold  and  silver  coin.  Nickel 
and  copper  are  used  for  the  minor  subsidiary  coin. 

Gold,  the  coinage  of  which  is  unlimited,  is  legal  tender 
for  a  period  of  twenty  years  from  the  date  of  coinage  to 
any  amount,  when  not  reduced  in  weight  more  than  one 
half  of  one  per  cent. 

The  coins  now  minted  are  the  quarter  eagles  ($2.50), 
64!-  grains;  the  half  eagle  ($5.00),  129  grains;  the  eagle 
($io),258  grains  ;  and  the  double  eagle  ($20),  5 16  grains,  all 
T9AVtns  fine'  or  nine-tenths  pure  gold  and  one-tenth 
alloy. 

Silver.  The  coinage  of  this  metal  is  now  practically 
confined  to  minor  coins,  and  the  purchase  of  silver  bullion 
since  the  repeal  in  1893  of  the  purchasing  clause  of  the 
Sherman  Act  has  ceased. 

60 


MONEY  OF   THE    UNITED   STATES.  6 1 

Silver  in  dollar  pieces  of  full  weight  is  legal  tender  for  all 
purposes  and  to  any  amount  in  the  absence  of  a  contract 
to  the  contrary.  The  smaller  silver  coins  are  only  legal 
tender  to  the  amount  of  ten  dollars. 

Coins  of  the  following  nominal  value,  ^fffyths  fine,  are 
now  outstanding:  Dollar,  value  $1.00,  weight  4I2J- 
grains;  half  dollar,  $0.50,  weight  192-^  grains;  quarter, 
$0.25,  weight  96T4Q5Tr  grains  ;  and  dime,  $0.10,  weight  38- 
T5o8o  grains. 

At  various  times  other  silver  coins  have  been  issued  ; 
thus  the  Trade  Dollar,  weighing  420  grains,  and  by  impli- 
cation a  legal  tender  to  the  amount  of  $5.00,  coined  under 
the  Act  of  1873,  circulated  for  about  five  years,  when 
its  coinage  was  discontinued,  and  provision  made  for 
its  redemption  at  its  face  value,  and  for  recoinage; 
the  twenty-cent  piece,  coined  from  1873  to  1878  ;  the  Co- 
lumbian half-dollar  to  the  amount  of  $2,500,000,  and  the 
Columbian  quarter-dollar  to  the  amount  of  $10,000,  is- 
sued in  1892.  Three-cent  pieces  and  a  half-dime  were 
also  coined. 

It  will  be  observed  that  while  about  $423,000,000  silver 
dollars  have  been  coined,  that  less  than  $54,000,000  were 
in  circulation  and  over  $369,000,000  on  deposit  in  the 
United  States  Treasury  on  April  I,  1895.  The  reason 
for  this  is  that  the  silver  coins  being  too  bulky  and  heavy 
for  extensive  use  in  large  amounts,  it  became  necessary 
for  the  government  to  receive  them  on  deposit  and  to 
issue  in  their  place  silver  certificates. 

Nickel  and  Copper.  These  metals  are  used  entirely  for 
minor  coins  which  are  only  legal  tender  to  the  amount  of 
25  cents  and  which  are  redeemable  by  the  United  States 
in  lawful  money  in  sums  of  not  less  than  twenty  dollars. 
While  at  various  times  half-cents  of  copper,  nickel  cents, 
bronze  cents,  and  two-  and  three-cent  pieces  of  nickel  have 
been  coined ;  at  present  only  the  copper  cent,  weight  48 
grains,  and  the  five-cent  piece  nickel,  weight  77TW  grains, 


62  PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

are  coined.     Some  of  the  other  coins,  however,  are  still 
occasionally  seen. 

Only  the  one-cent  piece  (copper)  and  five-cent  piece 
(nickel)  are  now  coined. 

Currency  of  the  United  States. — In  addition  to  the 
gold  and  silver  which  are  legal  tender  as  before  stated,  a 
large  part  of  the  country's  currency  is  also  legal  tender, 
and  that  fact  will  be  indicated  in  speaking  of  the  particu- 
lar notes. 

As  previously  explained,  the  currency  of  the  country, 
excepting  gold  and  silver  certificates,  is  secured  by  the 
government's  credit  and  its  metal  reserve.  Of  course  the 
metal  on  deposit  with  the  government  against  which  cer- 
tificates have  been  issued,  is  held  exclusively  for  the  re- 
demption of  those  certificates  and  is  not  applicable  to  any 
other  purpose.  The  national  bank  notes  are  secured  by 
the  pledge  of  the  government  strengthened  by  the  lawful 
money  reserve  required  to  be  kept  by  the  banks  of  issue 
and  by  the  United  States  bonds  and  the  5  %  redemption 
fund  deposited  by  such  banks  with  the  Treasurer  of  the 
United  States  to  insure  their  redemption. 

United  States  Notes  or  "Greenbacks"  These  notes  consti- 
tute the  balance  of  the  unredeemed  forced  paper  currency 
issued  during  the  late  Civil  War,  of  which  a  fixed  amount, 
$346,681,006,  is  outstanding.  They  are  legal  tender  for 
all  debts,  public  and  private,  except  duties  on  imports 
and  interest  on  the  public  debt,  but  being  redeemable 
upon  demand  in  coin,  the  latter  limitation  of  their  legal- 
tender  quality  is  of  little  effect ;  in  fact,  by  a  regulation 
of  the  Secretary  of  the  Treasury  they  are  received  in 
payment  of  customs  and  other  duties.  These  notes  when 
received  by  the  government  may  be  re-issued  and  of  course 
constitute  a  constant  claim  upon  the  government's  lawful 
money. 

United  States  Treasury  Notes.  Under  the  Act  of  1890, 
commonly  known  as  the  Sherman  bill,  these  notes  were 


MONEY  OF   THE    UNITED   STATES.  63 

issued  in  payment  of  purchases  of  silver,  and  are  legal 
tender  for  all  debts,  public  and  private,  except  where 
otherwise  stipulated  in  the  contract  between  the  parties. 
They  are  redeemable  in  gold  or  silver  coin  at  the  discre- 
tion of  the  Secretary  of  the  Treasury.  In  order  to  main- 
tain a  nominal  parity  of  silver  and  gold,  it  has  been  found 
necessary  during  the  last  few  years  to  redeem  these  notes 
when  demanded  by  the  holder  in  gold.  There  are  now 
outstanding  $155,000,000  of  United  States  Treasury  notes. 

Gold  Certificates  are  issued  in  denominations  of  not  less 
than  $20  by  the  Secretary  of  the  Treasury  against  de- 
posits of  gold  coin,  which  coin  shall  be  retained  in  the 
Treasury  exclusively  for  their  redemption  upon  demand. 
Gold  certificates  are  receivable  for  customs,  taxes,  and  all 
public  dues,  although  not  legal  tender. 

Silver  Certificates,  in  $i,  $2,  $5,  and  $10,  and  higher  de- 
nominations, are  issued  against  standard  silver  dollars 
deposited  in  the  Treasury.  They  are  not  legal  tender, 
but  are  receivable  for  public  dues.  As  explained  in  the 
remarks  on  silver,  these  certificates  circulate  largely  in 
place  of  the  coin  and  form  a  large  proportion  of  our 
currency. 

Currency  Certificates  (not  legal  tender)  are  issued  by 
the  United  States  in  denominations  of  $5000  and  up- 
wards upon  deposits  of  currency  with  the  United  States 
Treasury. 

National  Bank  Notes  are  issued  by  the  Comptroller  of 
the  Currency  to  national  banks  upon  deposit  by  them  of 
United  States  bonds  with  the  Treasurer  of  the  United 
States.  The  conditions  of  the  issue  of  these  notes  and  the 
security  by  which  they  are  protected  are  so  fully  stated 
in  the  article  on  National  Banks  as  to  make  any  repetition 
of  it  here  superfluous. 

The  following  table  contains  a  statement  of  the  kinds 
and  amounts  of  money  of  the  United  States  and  the 
banks  of  issue  on  April  I,  1895  : 


64 


PRINCIPLES  AND  PRACTICE   OF  FINANCE. 


Kinds. 

Total. 

In  Treasury. 

In  Circulation. 

Gold                    .      .  . 

$^67   ^Q2  4l6 

$88  098,517 

$470  403  800 

Silver  dollars  *  

422,927,039 

360,009,182 

53,917,857 

Subsidiary  silver,  cop- 
per, and  nickel.  .  .  . 

76,450,557 

346  681  016 

i6,577,5H 
80  74^  2^7 

59,873,046 
2^6  Q^  7^Q 

U.  S.  Treasury  notes 
National  bank  notes. 

150,330,089 
207,541,211 

28,872,489 
4,449,893 

I2I,457,6OO 
203,091,318 

$1,771,522,328 

$596,752,849 

$1,174,769,479 

Besides  the  above,  there  was  gold  bullion  to  the  amount 
°f  SS^S^/jQ/Q*  and  silver  bullion  of  the  nominal  value  of 
$124,673,187  in  the  Treasury  on  April  i,  1895. 

Gold  certificates,  silver  certificates,  and  currency  certifi- 
cates are  not  included  in  the  above  table,  for  the  obvious 
reason  that  they  are  only  issued  against  metal  or  currency 
as  previously  explained,  and  of  course  constitute  no  addi- 
tion to  the  lawful  money  supply. 

The  amount  of  silver  and  gold  certificates  in  circulation, 
however,  while  it  constitutes  a  demand  claim  upon  the 
government's  metal  holdings  against  which  these  certifi- 
cates are  issued,  increases  the  circulating  medium. 

NEW   YORK   SUB-TREASURY. 

The  Sub-Treasury,  situated  at  the  corner  of  Wall  and 
Nassau  Streets,  which  bound  it  on  the  south  and  west, 
while  Pine  Street  is  on  the  north  and  the  Assay  Office  a 
part  of  the  Sub-Treasury,  is  on  the  east,  occupies  the  site 
of  the  old  City  Hall  of  New  York,  which,  at  a  later  period, 
was  known  as  "  Federal  Hall."  Here  Washington  was  in- 
augurated as  the  first  President  of  the  United  States  of 
America,  and  took  the  oath  of  office  on  the  spot  now 

1  The  currency  is  augmented  by  the  issue  of  $331,121,504  of  silver  cer- 
tificates of  various  denominations  issued  against  silver  dollars.  $7,374,748 
of  these  certificates  were  in  the  Treasury,  and  $323,746,756  in  circulation 
on  April  i,  1895. 


NEW  YORK:  SUB-TREASURY.  65 

marked  by  the  imposing  bronze  statue,  of  which  J.  Q.  A. 
Ward  is  the  sculptor. 

This  building  is  conspicuous  among  the  loftier  buildings 
surrounding  it,  particularly  for  its  pure  architecture  and 
its  adaptability  for  its  present  use.  Its  solid  and  substan- 
tial form,  its  doors,  guarded  with  steel  gratings,  its  mas- 
sive safes,  immense  vaults,  and  its  uniformed  guards 
and  attendant  policemen,  as  well  as  the  fire-proof  charac- 
ter of  the  building,  suggest  it  as  a  proper  place  for  the 
.safe  storing  of  the  millions  of  gold  and  silver  which  are 
.always  within  its  walls.  From  the  time  of  its  completion 
in  1842,  down  to  1862,  it  was  used  as  a  Custom  House, 
since  which  time  it  has  been  devoted  to  its  present  use. 

In  the  basement  are  the  vaults  where  the  gold  and  sil- 
ver, after  being  received  through  the  Pine  Street  entrance, 
are  stored.  Besides  the  vaults  in  the  basement,  there  are 
large  safes  on  the  main  floor,  in  which  a  lesser  amount  of 
silver  and  gold  is  kept. 

The  main  entrance  to  the  Sub-Treasury  on  Wall  Street 
leads  to  a  large  and  well  lighted  rotunda,  surmounted  by 
a  beautiful  dome.  The  office  of  the  Assistant  U.  S. 
Treasurer  is  on  the  left  of  the  main  entrance.  The 
coin  division  is  in  the  Pine  Street  end  of  the  building. 
On  one  side  of  the  hall  is  the  division  where  the  larger 
denominations  of  coin  are  received  and  paid  out,  while 
across  the  hall  is  the  minor-coin  division.  The  upper 
floors  are  devoted  to  the  accounting  offices  and  files. 

This  Sub-Treasury  is  only  second  in  importance  to  the 
United  States  Treasury  in  Washington  in  the  amount  of 
business  transacted,  which  exceeds  the  aggregate  of  all 
the  other  sub-treasuries  in  the  country,  two  thirds  of  the 
government  revenues  and  disbursements  being  here  re- 
ceived and  disbursed ;  due  principally  to  the  fact  that  it 
only  costs  about  $1.01  per  million  to  handle  money  in 
this  office,  whereas  the  cost  of  handling  in  the  other  sub- 
treasuries  averages  $2.47  a  million. 


66  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

The  average  daily  balance  of  cash  (by  which  is  meant 
Treasury  certificates,  gold  certificates,  silver  certificates, 
National  Bank  Notes,  greenbacks,  gold  and  silver  bull- 
ion, gold  and  silver  coin,  subsidiary  coins  of  copper  and 
nickel)  is  very  difficult  to  state  with  any  exactness,  inas- 
much as  it  varies  daily  not  in  thousands  of  dollars  or 
hundreds  of  thousands  or  even  millions,  but  often  in  tens  of 
millions.  Within  the  last  year  ending  December,  1894, 
the  average  daily  balance  has  been  about  $110,000,000. 

The  receipts  consist  mainly  of  duties  received  at  the 
Custom  House,  which  are  daily  paid  in,  internal-revenue 
taxes,  deposits  of  postmasters,  remittances  from  banks 
acting  as  national  depositories,  and  deposits  of  banks  or 
individuals  throughout  the  country  of  bullion.  Here  gold 
certificates  payable  in  coin  or  in  bullion,  all  forms  of  paper 
money,  save  silver  certificates,  are  redeemed  in  coin  upon 
presentation. 

Silver  and  gold  coin  and  bullion  in  large  amounts  are 
deposited  by  banks  and  private  individuals  on  receipt. 
These  deposits  form  no  part  of  the  real  available  assets 
of  the  Sub-Treasury,  which,  for  the  time  being,  is  simply 
used  as  a  storehouse  for  their  safekeeping. 

The  principal  payments  and  disbursements  are  those 
made  to  the  disbursing  officers  of  the  army  and  navy, 
against  which  payments  deposits  have  been  previously 
made  from  the  main  Treasury  in  Washington.  Other  dis- 
bursements are  the  regular  Treasury  payments  on  appro- 
priations for  public  buildings,  improvements,  the  construc- 
tion of  public  works,  and  the  payment  of  pensions,  about 
$90,000,000  being  paid  out  annually  by  this  Sub-Treasury 
for  this  account  alone.  In  addition  to  these  disbursements 
the  interest  charges  on  government  bonds  falling  due  are 
here  paid  to  the  holders. 

Several  times  when  its  financial  condition  warranted,  the 
government  has,  in  order  to  relieve  the  stringency  of  the 
money  market,  anticipated  the  payment  of  its  bonds,  the 


NEW    YORK  SUB-TREASURY.  f 

necessary  disbursements  for  which  were  made  principally 
through  this  Sub-Treasury. 

The  Sub-Treasury  is  a  member  by  courtesy  of  "  The 
New  York  Clearing-House  Association,"  as  it  has  daily 
to  pay  large  balances  to  the  different  banks,  and  it 
thereby  saves  itself  and  them  the  trouble  of  making 
payments  to  each,  instead  paying  the  amount  due  all 
to  the  Clearing  House,  which  distributes  it. 

The  Assay  Office,  immediately  to  the  right  and  adjoin- 
ing the  Sub-Treasury,  of  which  it  forms  a  necessary  part, 
is  interesting  principally  as  the  storehouse  of  the  Sub- 
Treasury  and  from  the  fact  that  millions  of  coin  and 
bullion  are  here  stored.  A  comparatively  small  part  of 
the  gold  and  silver  here  in  store  is  in  the  shape  of  coin, 
that  being  generally  kept  at  the  Sub-Treasury.  But  here 
may  be  seen  bricks,  as  they  are  termed,  of  gold  bullion, 
little  larger  than  a  watch  charm,  square  in  shape,  and 
worth  about  $130,  according  to  the  fineness  of  the  metal, 
to  larger  bricks  worth  $6000. 

Bullion  is  received  in  this  office  through  the  Sub-Treas- 
ury from  all  parts  of  the  republic,  and  requisitions  are 
made  by  the  various  mints  of  the  country  on  it  for  such 
bullion  as  they  need  for  coinage. 


CHAPTER  II. 

Bapics — National  Bank  Act. 


THE  functioiaryof    a  'bank  Is  to  issue,  receive  on   de- 

•j  f     —   ->/ 

posit,  and  loan  money,  to  economize  its  use,  and  to  re- 
ceive, extend,  and  facilitate  the  interchange  of  credits  ; 
and  to  banks  is  largely  due  the  extension  and  the  develop- 
ment of  the  system  of  domestic  and  foreign  exchange, 
which  is  an  extension  of  the  system  of  banking  itself. 

To  appreciate  fully  the  extent  of  the  exchanges  effected 
by  banks,  we  must  bear  in  mind  that  while  the  active  cur- 
rency of  our  country  is  about  $1,600,000,000  the  total 
annual  clearances  of  the  Clearing  Houses  of  the  country 
are  $62,000,000,000. 

These  associations  are  formed  by  banks  for  the  pur- 
pose of  avoiding  actual  payment,  in  money,  of  their  obli- 
gations to  each  other  (see  Clearing  House).  Nor  does 
this  amount  include  transfers  between  depositors  of  the 
same  banks  effected  on  the  books  of  those  banks. 

Banks  are  divided  into  six  different  kinds,  the  first  and 
most  important  being  those  organized  under  the  National 
Banking  Act  of  1863,  and  the  amendments  which  have 
from  time  to  time  been  made  thereto,  and  called  National 
Banks.  Trust  Companies  which  are  organized  under  the 
laws  of  the  various  States  in  which  they  are  located,  State 
banks,  savings  banks,  National  Gold  Banks,  and  private 
banks. 

The  present  national  banking  system  came  into  exist- 
ence under  the  Act  of  1863 ;  this  Act,  however,  was  re- 


BANKS.  69 

pealed  and  superseded  by  that  of  1864,  previous  to  which 
the  banks  of  issue  were  organized  under  the  laws  of  the 
different  States  in  which  they  were  located.  These  laws 
were  not  uniform,  some  being  far  more  stringent  than 
others.  The  banking  laws  of  some  States,  however,  were 
almost  models  of  their  kind,  and  provided  ample  security 
for  the  protection  of  the  holders  of  the  bank  notes  as  well 
as  of  the  depositors. 

The  banking  laws  of  several  of  the  States  furnish  excel- 
lent object-lessons,  in  the  difference  between  sound  princi- 
ples and  their  application  to  finance,  and  dangerous  ex- 
periments in  the  attempt  to  create  money  out  of  nothing, 
or,  at  most,  out  of  values  insufficient  to  secure  the  face 
value  of  the  paper  money  issued  against  it,  and  which 
value  could  not  be  readily  converted  into  good  money. 

In  considering  the  question  of  banking  laws,  the  natural 
and  political  conditions  of  a  country  must  always  be  taken 
into  consideration,  and  it  is  not  fair  to  assume,  because 
at  a  certain  stage  of  a  country's  development  a  law 
has  been  unsuccessful,  at  a  later  period,  when  the  con- 
ditions have  been  entirely  changed,  the  result  would 
be  the  same.  Unquestionably,  if  the  present  national 
banking  system  had  been  tried  in  the  earlier  days  of  our 
republic,  or,  in  fact,  at  any  period  sooner  than  it  was,  it 
must  have  met  with  nearly  the  same  result  as  attended 
State  legislation,  or  at  best  have  been  but  little  more  suc- 
cessful than  the  average.  It  would,  undoubtedly,  how- 
ever, have  secured  uniformity  in  the  price  of  circulating 
notes — that  is,  the  notes  of  every  bank  would  be  of  the 
same  value  as  that  of  every  other,  which  is  something  un- 
attainable under  State  laws. 

The  National  Bank  Act  provides  for  the  incorporation 
of  National  Banks,  and  prescribes  that  such  banks  shall 
include  as  a  part  of  their  title  the  word  "  National,"  and 
prohibits  all  other  banks  from  using  the  word  "  National  " 
as  a  part  of  their  name.  Under  this  law  are  also  organized 


70  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

and  operated,  principally  on  the  Pacific  Coast,  what  are 
termed  "  National  Gold  Banks,"  In  the  District  of  Co- 
lumbia there  is  a  National  Savings  Bank,  authorized  by 
this  act.  State  banks  are  organized  under  the  laws  of  the 
States  in  which  they  are  located.  Trust  companies  are 
also  formed  under  the  State  laws. 

Savings  banks  are  organized  under  the  laws  of  the  vari- 
ous States  in  which  they  are  located,  and  are  subject  to 
many  restrictions  in  regard  to  the  character  of  their  in- 
vestments and  of  the  collateral  on  which  they  may  loan, 
also  the  proportion  of  currency  to  deposits  which  must  be 
kept  on  hand,  and  other  matters  which  will  be  more  fully 
explained  under  "  Savings  Banks." 

Private  banks  and  bankers,  i.e.,  one  or  more  individuals 
engaged  in  the  business  of  banking  but  not  incorporated 
as  a  company,  are  subject  to  State  supervision,  the  same 
as  State  banks,  only  when  they  issue  circulating  notes, 
which  they  are  permitted  to  do  under  the  laws  of  New 
York,  on  the  same  conditions  imposed  upon  State  banks, 
but  which  they  have  found  unprofitable  on  account  of 
the  Federal  tax  of  ten  per  cent,  on  the  issue  of  all  but 
national  banks. 

In  order  to  convey  a  clear  idea  of  the  powers  of,  and 
the  differences  between  the  several  kinds  of  banks,  it  has 
been  found  necessary  to  give  a  synopsis  of  the  laws  under 
which  they  exist,  and  to  which  they  are  amenable. 

NATIONAL  BANKS. 

The  National  Banking  Act  of  the  United  States  was 
first  passed  in  the  year  1863,  repealed  and  a  new  act  sub- 
stituted in  1864,  which  has  been  amended  from  time  to 
time  since.  Below  is  the  act  as  it  at  present  stands. 

To  thoroughly  establish  the  national  banking  system,  it 
became  necessary  for  the  Federal  Government  to  impose 
a  tax  of  ten  per  cent,  upon  the  circulating  notes  of  all 
other  than  national  banks.  By  many,  this  tax  is  consid- 


NATIONAL  BANKS.  fl 

ered  if  not  unconstitutional,  an  abuse  of  the  Federal 
taxing  power,  but  had  the  desired  effect  of  making  the 
"  National  "  the  prevailing  banking  system  of  the  country. 

Condensation  National  Bank  Act. — The  first  provision 
of  the  national  banking  act  as  now  in  force  provides  for 
the  establishment  of  the  Bureau  of  the  Comptroller  of  the 
Currency,  to  whom  all  matters  relating  to  national  banks 
are  referred,  with  power  to  grant  certificates  to  such  banks 
to  commence  business,  on  being  convinced  that  the  condi- 
tions of  the  act  are  complied  with,  or  in  his  discretion  to 
withhold  such  certificates ;  and  through  bank  examiners 
to  make  examinations  whenever  he  may  deem  it  necessary. 

Organization  and  Powers. — The  first  provision  of  the 
law  proper  is  in  regard  to  the  organization  and  powers  of 
national  banks,  and  prescribes  that  not  less  than  five 
natural  persons — and  by  natural  persons  is  meant  individ- 
uals and  not  corporations,  executors,  administrators,  etc. 
— may  associate  themselves  together  to  organize  a 
national  bank. 

They  must  make  an  organization  certificate  specifying 
the  object  of  the  formation  of  such  association,  and  this 
certificate,  which  must  be  properly  signed  and  forwarded 
to  the  Comptroller  of  the  Currency,  shall  state  :  first,  the 
name  of  such  association  ;  second,  the  town  or  city  and 
State  where  its  operations  are  to  be  conducted ;  the 
amount  of  capital  stock ;  the  number  of  shares  into 
which  it  is  to  be  divided  ;  the  names  and  places  of  resi- 
dence of  the  shareholders,  and  the  number  of  shares,  held 
by  each  of  them.  It  must  be  acknowledged  before  a  judge 
of  some  court  of  record  or  a  notary  public,  whose  seal 
must  be  attached  thereto. 

From  the  date  of  filing  the  articles  of  association,  after 
approval  of  their  application  by  the  Comptroller  of  the 
Currency,  the  associates  become  a  body  corporate,  and  as 
such  are  vested  with  the  power  to  use  a  corporate  seal  and 
to  have  for  twenty  years  the  use  and  enjoyment  of  the 


72  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

privileges  of  this  act,  subject  to  its  restrictions,  limitations, 
and  obligations,  although  this  incorporation  may  be 
sooner  dissolved,  according  to  the  provisions  of  its  articles 
of  association,  by  the  vote,  in  value,  of  two  thirds  of  the 
shareholders.  The  franchise  may  be  forfeited  through 
violation  of  the  law. 

It  shall  have  power  to  make  contracts. 

Such  association  may  sue  or  be  sued  in  the  same 
manner  as  natural  persons;  can  elect  or  appoint  direc- 
tors, and  such  directors  may  appoint  or  elect  a  president, 
vice-president,  cashier,  and  other  officers  necessary  to 
carry  on  its  business,  and  may  dismiss  these  and  appoint 
others  to  fill  their  places. 

Its  Board  of  Directors  may  adopt  by-laws  not  incon- 
sistent with  law.  Through  its  Board  of  Directors  and 
officers  it  may  exercise  such  powers  as  shall  be  necessary 
to  carry  on  the  business  of  banking,  in  its  various  forms. 

May  issue  circulating  notes  as  is  further  on  fully  stated, 
and  may  exercise  such  incidental  powers  as  shall  be 
necessary  to  carry  on  the  business  of  banking:  by  dis- 
counting and  negotiating  promissory  notes,  drafts,  bills  of 
exchange,  and  other  evidences  of  debt ;  by  receiving  de- 
posits ;  by  buying  and  selling  exchange,  coin,  and  bul- 
lion ;  by  loaning  money  on  personal  security  ;  and  by 
obtaining,  issuing,  and  circulating  notes  according  to  the 
,  provisions  of  this  title. 

May  purchase,  hold,  and  convey  real  estate,  but  only  as 
much  as  shall  be  necessary  for  its  immediate  accommodation 
in  the  transaction  of  its  business,  and  such  as  shall  be 
mortgaged  or  conveyed  to  it  in  good  faith  as  security  for 
or  satisfaction  of  debts  previously  contracted,  and  it  may 
hold  for  the  space  of  five  years  the  possession  of  real 
estate  under  mortgage  or  the  title  and  possession  of  such 
real  estate  as  may  be  purchased  to  secure  a  previously  in- 
curred debt,  at  the  expiration  of  which  time  such  real 
estate  must  be  sold. 


NATIONAL   BANKS.  73 

No  national  bank  may  be  organized  having  a  capital  of 
less  than  $50,000,  in  a  town  whose  population  is  less  than 
six  thousand  inhabitants  ;  $100,000  in  a  city  of  less  than 
fifty  thousand  ;  or  $200,000  in  a  city  of  more  than  fifty 
thousand  inhabitants. 

Its  capital  stock  shall  be  divided  into  shares  of  one  hun- 
dred dollars  each,  and  be  deemed  personal  property, 
transferable  on  its  books  as  prescribed  in  the  by-laws  or 
articles  of  association  ;  a  person  becoming  a  shareholder 
by  transfer  having  the  rights  and  incurring  the  obliga- 
tions of  the  original  shareholder. 

At  least  fifty  per  cent,  of  the  capital  stock  of  such  asso- 
ciation shall  be  paid  in  before  it  is  authorized  to  commence 
business,  and  the  remainder  to  be  paid  in  equal  monthly 
instalments  of  ten  per  cent.  each. 

The  first  payment  of  fifty  per  cent,  and  each  subsequent 
payment  must  be  certified  by  the  President  or  Cashier  of 
such  association  to  the  Comptroller  of  the  Currency. 

Upon  the  failure  of  a  shareholder  to  pay  any  instalment 
on  the  stock  subscribed  to  by  him,  such  association  may 
sell  the  stock  of  such  delinquent  shareholder  at  public 
auction,  after  three  weeks'  public  notice  thereof  published 
in  a  newspaper  of  general  circulation  in  the  city  or  county 
where  the  association  is  located,  or  in  the  city  or  county 
nearest  the  location  of  such  association,  to  the  person 
paying  the  highest  price  therefor,  which  price  shall  not 
be  less  than  the  amount  then  due,  together  with  the  ex- 
penses of  advertising  and  sale.  In  case  of  failure  to  sell, 
the  amount  previously  paid  by  such  shareholder  shall  be 
forfeited  to  the  association,  and  the  stock  shall  again, 
within  six  months  after  due  notice  as  above  provided,  be 
offered  for  sale,  when,  if  not  then  sold,  it  may  be  can- 
celled. 

Upon  the  certificate  of  payment  of  the  fifty  per  cent, 
of  the  capital  stock  being  sent  to  the  Comptroller,  he  may 
make  such  examination  as  he  thinks  necessary  to  deter- 


74  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

mine  whether  such  association  is  entitled  to  commence 
business,  and  if  such  examination  proves  it  is,  he  must 
then  issue  such  certificate  ;  but  if  such  examination  proves 
unsatisfactory,  he  may  withold  the  same.  Such  associa- 
tion shall  cause  the  certificate  so  issued  by  the  Comptroller 
to  be  published,  in  the  manner  before  stated,  for  at  least 
sixty  days. 

Before  any  bank  is  permitted  to  begin  business,  how- 
ever, it  is  required  to  transfer  and  deliver  to  the  Treasurer 
of  the  United  States,  United  States  registered  interest- 
bearing  bonds,  to  an  amount  of  not  less  than  thirty  thou- 
sand dollars  and  not  less  than  one  third  of  the  capital 
stock  of  such  bank,  except  in  the  case  of  banks  having  a 
capital  of  one  hundred  and  fifty  thousand  dollars  or  less, 
which  shall  be  only  required  to  transfer  United  States 
bonds  to  the  extent  of  one  fourth  of  their  capital.  Such 
bonds  shall  be  received  by  the  Treasurer  on  deposit,  and 
shall  be  kept  safely  in  his  office  until  otherwise  disposed 
of  under  the  provisions  of  this  act. 

All  transfers  of  bonds  made  by  any  bank  to  the  Treas- 
urer under  this  act  are  made  in  trust  for  the  association, 
and  a  memorandum  to  that  effect  should  be  written  or 
printed  on  each  bond  and  signed  by  the  Cashier  or  some 
other  officer  of  the  bank,  for  which  bonds  the  Comptroller 
or  a  clerk  will  issue  a  receipt,  stating  that  the  bond  is 
held  in  trust  for  the  bank  and  as  security  for  the  redemp- 
tion and  payment  of  any  circulating  notes  that  have  been 
or  may  be  delivered  to  such  bank.  No  assignment  or 
transfer  of  any  such  bond  by  the  Treasurer  shall  be 
deemed  valid  unless  countersigned  by  the  Comptroller, 
who  shall  keep  in  his  office  a  book  in  which  shall  be  en- 
tered, immediately  upon  his  counter-signing  it,  every  trans- 
fer or  assignment  by  the  Treasurer  of  any  bonds  belong- 
ing to  a  national  bank,  which  entry  shall  state  the  name 
of  the  bank  from  whose  account  the  transfer  is  made,  the 
name  of  the  party  to  whom  made,  and  the  par  value  of 


NATIONAL  BANKS.  75 

the  bonds  transferred  ;  notice  of  which  transfer  shall  be 
immediately  given  to  the  bank  by  the  Comptroller. 

The  Comptroller  is  given  access  to  the  books  of  the 
Treasurer  of  the  United  States,  for  the  purpose  of  ascer- 
taining the  correctness  of  any  such  transfer  or  assignment, 
and  also  to  the  bonds  to  ascertain  their  amount  and  con- 
dition. Like  access  is  given  the  Treasurer  to  the  books 
of  the  Comptroller  for  the  same  purpose. 

Each  bank  is  required  at  least  once  a  year,  through 
some  officer  or  representative,  to  compare  the  bonds 
pledged  by  it,  with  the  books  of  the  Comptroller,  and  if 
found  correct  to  execute  to  the  Treasurer  a  certificate 
setting  forth  the  different  kinds  and  the  amounts  thereof, 
and  that  the  same  are  in  the  possession  and  custody  of 
the  Treasurer,  a  duplicate  of  which,  signed  by  the  Treas- 
urer, shall  be  retained  by  the  bank. 

The  bonds  transferred  to  and  deposited  with  the 
Treasurer  of  the  United  States  by  any  bank,  for  the 
security  of  its  circulating  notes,  shall  be  held  exclusively 
for  that  purpose,  until  such  notes  are  redeemed.  The 
Comptroller  of  the  Currency  shall  give  to  any  such  bank 
powers  of  attorney  to  receive  and  appropriate  to  its  own 
use  the  interest  on  the  bonds  which  it  has  so  transferred 
to  the  Treasurer  ;  but  such  powers  shall  become  inopera- 
tive whenever  such  association  fails  to  redeem  its  circulat- 
ing notes.  Whenever  the  market  or  cash  value  of  any 
bonds  thus  deposited  with  the  Treasurer  is  reduced  below 
the  amount  of  the  circulation  issued  for  the  same,  the 
Comptroller  may  demand  and  receive  the  amount  of  such 
depreciation  in  other  United  States  bonds  at  cash  value, 
or  in  money,  from  the  association,  to  be  deposited  with 
the  Treasurer  as  long  as  such  depreciation  continues. 
And  the  Comptroller,  upon  the  terms  prescribed  by  the 
Secretary  of  the  Treasury,  may  permit  an  exchange  to  be 
made  of  any  of  the  bonds  deposited  with  the  Treasurer 
by  any  association  for  other  bonds  of  the  United  States 


76  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

authorized  to  be  received  as  security  for  circulating  notes, 
if  he  is  of  opinion  that  such  an  exchange  can  be  made 
without  prejudice  to  the  United  States ;  and  he  may 
direct  the  return  of  any  bonds  to  the  bank  which  trans- 
ferred the  same,  in  sums  of  not  less  than  one  thousand 
dollars,  upon  the  surrender  to  him  and  the  cancellation  of 
a  proportionate  amount  of  such  circulating  notes. 

The  association  making  a  deposit  of  bonds  as  herein 
provided  shall  be  entitled  to  receive  from  the  Comptroller 
of  the  Currency  circulating  notes  of  different  denomina- 
tions, in  blank,  registered  and  countersigned  as  provided 
by  law,  equal  in  amount  to  ninety  per  centum  of  the  cur- 
rent market  value,  not  exceeding  par,  of  the  United  States 
bonds  so  transferred  and  delivered. 

"  In  order  to  furnish  suitable  notes  for  circulation,  the  Comp- 
troller of  the  Currency  shall,  under  the  direction  of  the  Secretary 
of  the  Treasury,  cause  plates  and  dies  to  be  engraved,  in  -the  best 
manner  to  guard  against  counterfeiting  and  fraudulent  altera- 
tions, and  shall  have  printed  therefrom,  and  numbered,  such 
quantity  of  circulating  notes,  in  blank,  of  the  denominations 
of  one  dollar,  two  dollars,  three  dollars,  five  dollars,  ten  dol- 
lars, twenty  dollars,  fifty  dollars,  one  hundred  dollars,  five  hun- 
dred dollars,  and  one  thousand  dollars,  as  may  be  required  to 
supply  the  associations  entitled  to  receive  the  same.  Such 
notes  shall  express  upon  their  face  that  they  are  secured  by 
United  States  bonds,  deposited  with  the  Treasurer  of  the 
United  States,  by  the  written  or  engraved  signatures  of  the 
Treasurer  and  Register,  and  by  the  imprint  of  the  seal  of  the 
Treasury  ;  and  shall  also  express  upon  their  face  the  promise 
of  the  association  receiving  the  same  to  pay  on  demand,  at- 
tested by  the  signatures  of  the  president  or  vice-president  and 
cashier  ;  and  shall  bear  such  devices  and  such  other  state- 
ments, and  shall  be  in  such  form,  as  the  Secretary  of  the 
Treasury  shall,  by  regulation,  direct." 

The  expenses  of  the  issuance  of  such  notes  shall  be 
paid  from  the  taxes  assessed  on  the  circulation  of  the 
banks  to  which  they  are  issued. 


NATIONAL  BANKS.  77 

The  Comptroller  of  the  Currency  shall  cause  to  be  ex- 
amined each  year,  the  plates,  dies,  butt-pieces  (bed-pieces), 
and  other  material  from  which  the  national-bank  circula- 
tion is  printed,  and  file  in  his  office  annually  a  correct  list 
of  the  same. 

Such  material  as  shall  have  been  used  in  the  printing 
of  the  notes  of  associations  which  are  in  liquidation,  or 
have  closed  business,  shall  be  destroyed  under  such  regu- 
lations as  shall  be  prescribed  by  the  Comptroller  of  the 
Currency  and  approved  by  the  Secretary  of  the  Treasury. 
The  expenses  of  any  such  examination  or  destruction 
shall  be  paid  out  of  any  appropriation  made  by  Congress 
for  the  special  examination  of  national  banks  and  bank- 
note plates. 

National  banks  can  only  issue  notes  furnished  by  the 
Federal  Government.  Since  specie  payments  have  been 
resumed  no  association  has  been  furnished  with  notes  of 
a  less  denomination  than  five  dollars. 

It  may  increase  or  decrease  its  stock  on  a  two-thirds 
vote  in  value  of  its  stockholders,  and  after  notice,  subject 
to  the  following  conditions  :  In  the  case  of  increasing  its 
stock,  it  must  also  increase  its  transfer  of  bonds  to  the 
Treasurer  of  the  United  States,  so  that  there  may  always 
be  in  the  hands  of  the  Comptroller  bonds  to  the  amount 
of  twenty-five  per  cent,  of  the  capital  of  such  association. 
In  the  case  of  a  decrease  of  capital,  it  can,  after  providing 
for  the  payment  of  its  outstanding  circulating  notes,  de- 
crease its  deposit  of  bonds  with  the  Comptroller,  but 
never  below  twenty-five  per  cent,  of  its  capital. 

It  may  elect  directors  at  its  annual  meeting,  or  in  the 
case  of  a  failure  then  to  elect,  at  some  subsequent  meet- 
ing, of  which  due  notice  shall  be  given.  Its  affairs  shall 
be  managed  by  not  less  than  five  directors,  elected  by  the 
shareholders,  each  director  being  required  to  be  a  bona- 
fide  owner  of  at  least  ten  shares  of  unpledged  stock. 
Every  director  must,  during  his  whole  term  of  service, 
be  a  citizen  of  the  United  States,  and  at  least  three  fourths 


78  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

of  the  directors  must  at  the  time,  and  for  at  least  a  year 
previous,  have  resided  in  the  State,  territory,  or  district, 
in  which  the  association  is  located. 

Directors  are  required  to  take  an  oath  as  to  their  dili- 
gent and  honest  administration  of  the  affairs  of  the  asso- 
ciation, and  transmit  the  same  to  the  Comptroller  of  the 
Currency,  to  be  filed.  The  Directors  may  fill  any  vacancy 
occurring  in  their  Board  until  the  next  election. 

"  The  shareholders  of  a  national  bank  are  held  individually- 
responsible,  equally  and  ratably  and  not  for  one  another,  for  all 
contracts,  debts,  and  engagements  of  such  association  to  the 
extent  of  the  amount  of  their  stock  therein,  at  the  par  value 
thereof,  in  addition  to  the  amount  invested  in  such  shares  ; 
except  that  shareholders  of  any  banking  association  now  exist- 
ing under  State  laws,  having  not  less  than  five  milllions  of 
dollars  of  capital  actually  paid  in,  and  a  surplus  of  twenty  per 
centum  on  hand,  both  to  be  determined  by  the  Comptroller  of 
the  Currency,  shall  be  liable  only  to  the  amount  invested  in  their 
shares  ;  and  such  surplus  of  twenty  per  centum  shall  be  kept 
undiminished  and  be  in  addition  to  the  surplus  provided  for  in 
this  title  ;  and  if  at  any  time  there  is  a  deficiency  of  twenty 
per  centum  in  such  surplus,  such  association  shall  not  pay  any 
dividends  to  its  shareholders  until  the  deficiency  is  made 
good  ;  and  in  case  of  such  deficiency,  the  Comptroller  may 
compel  the  association  to  close  its  business  and  wind  up  its 
affairs.  .  .  ." 

Executors,  administrators,  guardians,  or  trustees  hold- 
ing stock  are  not  personally  subject  to  any  liabilities  as 
stockholders,  but  the  estates  which  they  represent  are. 

A  national  bank  may,  upon  a  further  deposit  of  gov- 
ernment bonds  with  the  Secretary  of  the  Treasury,  be 
designated,  and  act  as  a  depository  of  public  moneys  and 
as  the  financial  agent  of  the  government,  and  every  asso- 
ciation so  designated  as  a  receiver  and  depository  of  pub- 
lic money  shall  take  and  receive  at  par  all  national 
currency  bills  by  whatever  association 'issued,  which  have 


NATIONAL  BANKS.  79 

been  paid  into  the  government  for  internal  revenue  or  for 
loans  or  stocks. 

A  State  bank  may  reorganize  under  the  provisions  of 
this  Act  and  may  retain  and  keep  in  operation  its  branches. 

Associations  may  be  organized  under  the  National 
Banking  Act  for  the  purpose  of  issuing  notes  payable  in 
gold  upon  the  deposit  of  any  United  States  bonds  bear- 
ing interest  payable  in  gold,  with  the  Treasurer  of  the 
United  States,  but  none  of  a  smaller  denomination  than 
$5,  nor  can  they  issue  notes  in  excess  of  eighty  per  cent, 
of  the  par  value  of  the  bonds  so  deposited. 

"  Gold  Banks,"  as  these  are  termed,  are  required  to 
keep  on  hand  twenty-five  per  cent,  of  their  outstanding 
circulation  in  gold  and  silver  coin  of  the  United  States, 
and  to  receive,  at  par,  in  the  payment  of  debts,  the  gold 
notes  of  every  other  like  association  which,  at  the  time  of 
such  payment,  is  redeeming  its  circulating  notes  in  gold 
coin  of  the  United  States. 

The  words  "  lawful  money  "  are  construed  to  mean 
"  gold  or  silver  "  coin  of  the  United  States. 

A  fine  of  one  hundred  dollars  is  imposed  for  use  of  any 
National  Bank  bill  as  a  means  of  advertising,  either  by 
writing  or  printing  the  name  and  business  thereon,  or  by 
sending  out  an  advertisement  in  the  shape  of  a  copy  of 
any  such  bill.  There  is  also  a  fine  of  fifty  dollars  for 
defacing  or  mutilating  these  bills. 

The  cities  in  which  national  banks  are  located  are  di- 
vided into  three  classes  :  first,  ordinary  ;  second,  reserve  ; 
and  third,  central  reserve  cities. 

Ordinary  cities  comprise  the  great  number  of  cities, 
neither  reserve  nor  central  reserve,  in  which  national 
banks  are  required  to  maintain  a  reserve  of  fifteen  per 
cent,  of  the  amount  on  deposit  with  them,  three  fifths  of 
which  reserve  may  be  deposited  by  them  in  reserve  or 
central  reserve  banks. 

In  reserve  cities,  which  are  divided  into  four  groups,  at 


80  PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

this  date  (1895)  comprising  the  following  cities:  Group 
I,  Boston,  Albany,  Brooklyn,  Philadelphia,  and  Pittsburg. 
Group  2,  Baltimore,  Washington,  New  Orleans,  and 
Louisville.  Group  3,  Cincinnati,  Cleveland,  Detroit,  Mil- 
waukee, Des  Moines,  and  Minneapolis.  Group  4,  Kan- 
sas City,  St.  Joseph,  Lincoln,  Omaha,  and  San  Francisco. 
National  banks  must  keep  on  hand  twenty-five  per  cent, 
of  the  amount  on  deposit  with  them,  one  half  of  which 
may  consist  of  amounts  on  deposit  to  their  credit  in  central 
reserve  banks. 

Central  reserve  cities,  consisting  in  1895  of  New  York, 
Chicago,  and  St.  Louis.  In  these  cities  national  banks 
must  maintain  a  reserve  of  twenty-five  per  cent,  and  may 
act  as  the  depositories  of  a  portion  of  the  reserve  of  ordi- 
nary and  reserve  city  banks.  Any  city  of  more  than  two 
hundred  thousand  population  may,  upon  written  applica- 
tion to  and  approval  of  the  Comptroller,  signed  by  three 
fourths  of  the  national  banks,  become  a  "  Central  Reserve 
City."  Upon  like  application,  any  city  with  a  population 
of  fifty  thousand  or  more  may  be  added  to  the  list  of 
reserve  cities. 

All  national  banks  are  required  to  deposit  with  the 
Comptroller  a  fund  equal  to  five  per  cent,  of  their  circu- 
lating notes,  which  fund  shall  be  held  exclusively  for  that 
purpose,  but  may  be  considered  as  a  part  of  their  lawful 
money  reserve. 

"  Clearing-house  certificates,  representing  specie  and 
lawful  money  specially  deposited  for  the  purpose  of  any 
clearing-house  association,  shall  also  be  deemed  to  be  law- 
ful money  in  the  possession  of  any  association  belonging 
to  such  clearing  house." 

When  the  reserve  of  any  bank  falls  below  the  respective 
percentages  above  given,  such  bank  shall  not  increase  its 
liabilities  by  making  new  loans  or  discounts  otherwise 
than  by  discounting  or  purchasing  bills  of  exchange 
payable  at  sight,  nor  declare  or  pay  any  dividend  on  its 


NATIONAL  BANKS.  8 1 

profits,  until  such  reserve  is  made  good.  If  within  thirty 
days  after  notice  from  the  Comptroller  to  make  such  re- 
serve good  the  same  is  not  done,  the  Comptroller,  with 
the  concurrence  of  the  Secretary  of  the  Treasury,  may 
appoint  a  receiver  to  wind  up  the  affairs  of  such  bank. 

The  reserve  required  to  be  kept  by  National  Gold  Banks 
is  not  only  a  percentage  on  its  deposits,  as  in  the  case  of 
national  banks,  but  on  its  circulation  as  well. 

Each  national  bank  in  any  of  the  reserve  cities  shall, 
with  the  approval  of  the  Comptroller,  select  a  national 
bank  in  a  central  reserve  city,  at  which  it  may  redeem  its 
-circulating  notes  at  par,  and  may  keep  one  half  of  its 
lawful  money  reserve  in  cash  deposits  in  such  central 
reserve  city,  but  this  does  not  apply  to  National  Gold 
Banks. 

Every  national  bank  must  receive  and  take  at  par,  for 
any  debt  or  liability  to  it,  the  notes  or  bills  of  any 
other  national  bank,  except  the  notes  of  associations  or- 
ganized for  the  purpose  of  issuing  notes  payable  in  gold. 

The  rate  of  interest  which  may  be  charged  is  the  legal 
rate  prevailing  in  the  State  where  such  bank  is  located, 
or  the  same  as  that  which  State  banks  of  issue  are  permit- 
ted by  State  law  to  charge. 

Where  no  rate  is  fixed,  seven  per  centum ;  but  the 
premium  on  a  bill  of  exchange  payable  at  some  other 
place,  is  not  considered  interest. 

The  penalty  for  usury  is  the  recovery  of  twice  the 
amount  of  interest  received,  by  an  action  commenced 
within  two  years  from  the  time  of  the  transaction. 

The  Directors  may,  semi-annually,  declare  a  dividend  of 
so  much  of  the  net  profits  as  they  shall  judge  expedient, 
but  before  the  declaration  of.  such  dividend,  each  bank 
shall  carry  one  tenth  of  its  net  earnings  of  the  preceding 
half  year  to  its  surplus  fund  until  the  same  shall  amount 
to  twenty  per  cent,  of  its  capital  stock. 

Not  more  than  ten  per  cent,  of  the  capital  paid  in  shall 

6 


82  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

be  Jpoaned  to  any  individual  corporation  or  firm,  or  the 
different  members  thereof,  but  this  does  not  prohibit  the 
discount  of  bills  of  exchange  drawn  against  existing  values, 
or  of  commercial  paper  owned  by  the  person  negotiating 
the  same. 

No  loan  or  discount  may  be  made  on  the  security  of 
the  stock  of  such  bank,  nor  shall  a  bank  become  the  pur- 
chaser or  holder  of  such  shares  except  as  security  for  a 
previously  contracted  debt,  and  such  stock  shall  within 
six  months  be  disposed  of,  on  notice,  at  public  sale,  on 
failure  to  do  which  a  receiver  may  be  appointed. 

The  liabilities  of  a  bank  shall  at  no  time  exceed  its 
capital  stock  paid  in  and  undiminished,  except  on  de- 
mands of  the  following  nature  : 

1st.     Notes  of  circulation. 

2d.  Moneys  deposited  with  or  collected  by  the  asso- 
ciation. 

3d.  Bills  of  exchange  or  drafts  drawn  against  money 
actually  on  deposit  to  the  credit  of  the  association,  or 
due  thereto. 

4th.  Liabilities  to  the  stockholders  of  the  association 
for  dividends  and  reserve  profits.  Its  circulating  notes 
shall  not  be  pledged  or  hypothecated  to  procure  money 
to  be  paid  in  on,  or  to  increase  its  capital. 

No  portion  of  its  capital,  either  in  the  form  of  dividends 
or  otherwise,  shall  be  withdrawn  by  the  association  or  any 
member. 

No  dividends  shall  be  declared  in  excess  of  the  net 
profits  of  the  bank,  a*fter  deducting  all  losses  sustained 
and  bad  debts  contracted.  Debts  on  which  interest  is 
due  and  unpaid  for  six  months,  unless  well  secured  and 
in  process  of  collection,  shall  be  considered  "bad  debts." 

"  Every  association  which  shall  have  failed  to  pay  up  its 
capital  stock,  as  required  by  law,  and  every  association  whose 
capital  stock  shall  have  become  impaired  by  losses  or  other- 
wise, shall,  within  three  months  after  receiving  notice  thereof 


NATIONAL   BANKS.  83 

from  the  Comptroller  of  the  Currency,  pay  the  deficiency  in 
the  capital  stock,  by  assessment  upon  the  shareholders  pro 
rata  for  the  amount  of  capital  stock  held  by  each  ;  and  the 
Treasurer  of  the  United  States  shall  withhold  the  interest 
upon  all  bonds  held  by  him  in  trust  for  such  association  upon 
notification  from  the  Comptroller  of  the  Currency,  until  other- 
wise notified  by  him. 

"  And  provided.  That  if  any  shareholder  or  shareholders  of 
such  bank  shall  neglect  or  refuse,  after  three  months'  notice, 
to  pay  the  assessment,  as  provided  in  this  section,  it  shall  be 
the  duty  of  the  board  of  directors  to  cause  a  sufficient  amount 
of  the  capital  stock  of  such  shareholder  or  shareholders  to  be 
sold  at  public  auction  (after  thirty  days'  notice  shall  be  given 
by  posting  such  notice  of  sale  in  the  office  of  the  bank,  and  by 
publishing  such  notice  in  a  newspaper  of  the  city  or  town  in 
which  the  bank  is  located,  or  in  a  newspaper  published  near- 
est thereto),  to  make  good  the  deficiency  ;  and  the  balance,  if 
any,  shall  be  returned  to  such  delinquent  shareholder  or 
shareholders." 

No  bank  shall  pay  out  or  put  in  circulation  the  notes 
of  any  other  bank  which  are  not  receivable  and  redeem- 
able at  par  by  such  bank. 

Over-certification  of  checks  is  strictly  prohibited,  render- 
ing officers  or  clerks  liable  to  imprisonment  for  not  less 
than  five  years  nor  more  than  ten,  and  giving  the  Comp- 
troller power  to  appoint  a  receiver. 

A  list  of  the  shareholders  shall  be  kept  by  the  Presi- 
dent and  Cashier,  containing  the  names  and  residences  of 
the  shareholders  and  the  number  of  shares  of  stock  held 
by  each,  which  list  shall  be  subject  to  inspection  by  the 
shareholders  of  the  banks,  creditors,  and  State  officers  au- 
thorized to  assess  taxes,  and  on  the  first  Monday  of  July 
a  copy  of  such  list  sworn  to  by  the  President  or  Cashier 
shall  be  mailed  to  the  Comptroller. 

Five  reports  a  year  shall  be  mailed  by  each  bank  to  the 
Comptroller,  verified  under  oath  by  the  President  and 
Cashier  and  attested  by  at  least  three  directors,  giving  in 


84  PRINCIPLES  AND   PRACTICE   OF  FINANCE. 

detail  under  proper  headings  the  resources  and  liabilities 
of  the  bank  at  the  close  of  business  of  any  past  day  by 
him  specified,  and  shall  be  mailed  to  the  Comptroller 
within  five  days  after  a  request  for  same,  and  in  the  form 
in  which  mailed  to  the  Comptroller  shall  be  published  in 
a  newspaper,  as  heretofore  described,  and  proof  of  such 
publication  sent  the  Comptroller.  The  Comptroller  may 
also,  whenever  he  deems  it  desirable,  call  for  special 
reports. 

Each  bank  must,  within  ten  days  after  declaring  any 
dividend,  report  to  the  Comptroller  the  amount  of  such 
dividend,  also  the  amount  of  the  net  earnings,  of  such 
bank  in  excess  of  such  dividend,  which  report  shall  be 
attested  by  the  oath  of  the  President  or  the  Cashier. 

A  penalty  of  one  hundred  dollars  a  day  for  each  day's 
delay  after  the  periods  named  in  the  last  two  paragraphs 
is  imposed  for  failure  to  make  and  transmit  the  reports 
therein  mentioned,  which  penalty,  upon  delay  or  refusal  to 
pay  by  the  association  after  it  has  been  assessed,  may  be 
retained  by  the  United  States  Treasurer,  upon  the  order 
of  the  Comptroller,  out  of  the  interest,  as  it  may  become 
due,  on  the  bonds  deposited  by  said  association  to  secure 
circulation.  All  penalties  collected  under  this  section 
shall.be  paid  into  the  Treasury  of  the  United  States. 

The  following  taxes  are  payable,  on  the  average  amount 
of  its  circulating  notes,  in  January  and  July  of  each  year 
one  half  of  one  per  cent. 

Semi-annually  on  the  average,  deposits  one  fourth  of  one 
per  cent,  and  a  like  per  cent,  on  the  average  amount  of  its 
capital  stock  beyond  the  sum  invested  in  United  States 
bonds. 

It  is  required  to  report,  within  ten  days  from  the  first 
days  of  January  and  July  yearly,  to  the  Treasurer  the 
average  amount  of  its  notes  in  circulation,  of  its  deposits, 
and  of  its  capital  beyond  the  amount  invested  in  United 
States  bonds  for  the  preceding  half  year.  The  penalty 


NATIONAL  BANKS.  85 

provided  for  a  failure  to  so  report  is  two  hundred  dollars, 
to  be  collected  as  above,  or  by  suit. 

The  Comptroller  upon  the  failure  of  any  bank  to  make 
such  report  shall  assess  the  tax  on  circulation,  on  the 
amount  of  notes  delivered  to  such  bank,  and  upon  the 
highest  amount  of  its  capital  and  deposits.  These  taxes 
are  collected  out  of  the  interest  on  the  bonds  to  the  credit 
of  the  bank.  Over-payments  of  taxes  are  refunded. 

The  National  taxes  just  recited  do  not  prevent  the  im- 
position of  State  taxes,  except  that  such  taxes  shall  not 
be  of  a  discriminating  nature. 

Examiners  may  be  appointed  by  the  Comptroller  with 
the  approval  of  the  United  States  Treasurer  to  make  an 
examination  into  all  the  affairs  of  any  national  bank,  and 
report  thereon.  They  shall  have  the  power  to  examine 
officers  or  clerks  under  oath,  and  call  for  the  production 
of  any  books  and  papers  belonging  to  the  bank  which 
they  may  deem  necessary.  The  fees  of  such  examiner  or 
examiners,  for  the  examination  of  banks  not  located  in 
the  redemption  cities  or  in  the  States  of  Oregon,  Califor- 
nia, Nevada,  or  the  Territories,  shall  be,  for  banks  having 
a  capital  of  less  than  $100,000,  $20;  $ioo,ooo-$3OO,ooo, 
$25  I  $300,000  and  less  than  $400,000,  $35  ;  $400,000  but 
less  than  $500,000,  $40 ;  $5oo,ooo-$6oo,ooo,  $50 ;  $600,000 
and  over,  $75. 

These  charges  shall  be  assessed  by  the  Comptroller 
upon,  and  paid  by  the  banks  so  examined. 

The  fees  charged  for  the  examination  of  banks  in  the 
redemption  cities1  and  in  the  States  of  Oregon,  California, 
or  Nevada,  or  any  of  the  Territories,  shall  be  fixed  by  the 
Secretary  of  the  Treasury  upon  the  recommendation  of 
the  Comptroller.  No  person  shall  be  appointed  to  exam- 
ine the  affairs  of  any  bank  of  which  he  is  a  director  or 
other  officer. 

Any  national  bank  may  go   into  liquidation    and    be 

1  There  are  now  no  redemption  cities. 


86  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

closed  by  the  vote  of  shareholders  owning  two  thirds  of  its 
stock,  of  which  vote  it  shall  be  the  duty  of  the  directors 
to  cause  notice,  certified  under  seal  by  the  President  and 
Cashier,  to  be  sent  the  Comptroller,  and  have  the  same 
published  for  two  months,  in  a  newspaper  published  in  the 
city  of  New  York,  and  in  a  local  paper  as  provided  in 
the  case  of  other  notices.  The  notice  shall  state  that  the 
association  is  closing  up  its  affairs,  and  shall  notify  the 
holders  of  its  notes  and  other  creditors  to  present  their 
notes  or  claims  for  payment.  Such  association  shall 
within  six  months  after  such  vote  deposit  with  the  Treas- 
urer of  the  United  States  lawful  money  of  the  United 
States  sufficient  to  redeem  all  its  outstanding  circulating 
notes,  which  money  shall  be  placed  to  its  credit  upon 
"  redemption  account  "  and  duly  receipted  for  by  the 
Treasurer. 

An  association  which  is  in  good  faith  winding  up  its 
business  for  the  purpose  of  consolidating  with  another 
association,  shall  not  be  required  to  deposit  lawful  money 
for  its  outstanding  circulation  ;  but  its  assets  and  liabili- 
ties shall  be  reported  by  the  association  with  which  it  is 
in  process  of  consolidation.  . 

Upon  the  deposit  of  sufficient  lawful  money  to  redeem 
its  outstanding  circulating  notes,  the  United  States  bonds 
transferred  by  such  association  to  the  Treasurer  of  the 
United  States  shall  be  re-assigned  to  it,  and  its  share- 
holders are  discharged  of  all  liability  upon  such  notes, 
which  shall  be  redeemed  at  the  Treasury  of  the  United 
States  ;  but  should  such  association  fail  within  thirty  days 
after  the  expiration  of  the  time  specified  to  make  said 
deposit,  and  take  up  its  bonds,  the  Comptroller  may  sell 
the  same  at  public  auction  in  the  city  of  New  York,  and 
after  providing  for  the  redemption  and  cancellation  of  its 
circulating  notes,  and  expenses  of  sale,  he  shall  pay  over 
any  balance  remaining  to  the  bank  or  its  legal  represen- 
tatives. 


NATIONAL  BANKS.  8/ 

Redeemed  notes  shall  be  destroyed. 

Upon  the  failure  of  a  bank  to  redeem  its  circulating 
notes  either  at  its  place  of  business  or  designated  place 
of  redemption,  the  holder  may  cause  the  same  to  be  pro- 
tested in  one  package  by  a  notary  public,  unless  such 
protest  is  waived  by  the  President  or  Cashier  of  such 
bank,  and  he  delivers  to  the  party  making  such  demand 
an  admission  in  writing  stating  the  time  of  the  demand, 
the  amount  demanded,  and  the  fact  of  the  non-payment 
thereof.  The  notary  shall  forward  such  protest  or  ad- 
mission to  the  Comptroller,  retaining  a  copy  thereof.  If, 
however,  satisfactory  proof  is  produced  to  the  notary 
public  that  the  payment  of  the  notes  demanded  is  re- 
strained by  order  of  any  Court  of  competent  jurisdiction, 
he  shall  not  protest  the  same.  The  holder  can  recover 
for  only  one  protest  fee  on  the  same  day. 

Upon  such  notice  of  protest  of  the  notes  of  a  bank, 
the  Comptroller  may  order  an  examination  of  such  bank 
by  a  special  agent,  and  if  satisfied  by  his  report,  that  it 
has  refused  to  redeem  its  notes,  and  is  in  default,  may, 
within  thirty  days  after  the  reception  of  such  notice  of 
such  failure,  declare  the  bonds  deposited  by  such  associa- 
tion forfeited  to  the  United  States. 

After  failure  to  pay  any  of  its  circulating  notes,  except 
by  order  or  injunction  of  Court,  such  bank  is  forbidden  to 
continue  its  business. 

Notice  shall  be  given  to  the  holders  of  the  notes  of  such 
defaulting  bank  by  the  Comptroller  to  present  them  for 
payment  at  the  United  States  Treasury,  and  he  may  cancel 
an  amount  of  bonds  deposited  by  said  bank  equal  at 
current  market  rates,  not  exceeding  par,  to  the  notes 
paid. 

The  United  States  has  a  first  lien  upon  the  assets  of  all 
national  banks  until  it  has  been  reimbursed  for  the  amount 
of  any  payments  made  by  it  on  account  of  the  circulating 
notes  of  said  defaulting  association. 


88  PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

The  bonds  on  deposit  may  be  sold  at  public  or  private 
sale  by  the  Comptroller  to  redeem  the  circulating  notes 
of  any  delinquent  bank,  but  at  no  price  less  than  par  or 
less  than  the  market  value  at  the  time  of  sale. 

The  Comptroller  shall,  upon  becoming  satisfied  of  the 
refusal  of  any  national  bank  to  redeem  its  notes,  or  of  its 
insolvency,  or  its  violations  of  those  provisions  of  the 
National  Banking  Act,  which  authorize  the  appointment 
of  a  receiver  for  a  non-compliance,  therewith  appoint  a  re- 
ceiver with  the  usual  powers,  and  require  of  him  a  bond 
in  such  sum  as  he  shall  deem  necessary.  The  receiver  so 
appointed  shall  pay  over  all  moneys  collected  by  him  to 
the  Treasurer  of  the  United  States,  subject  to  the  order 
of  the  Comptroller.  The  Comptroller  shall,  upon  the 
appointment  of  a  receiver,  give  three  months'  notice  to 
creditors  to  present  claims  against  such  bank. 

It  is  necessary  to  say  but  little  more  of  that  part  of  the 
national  banking  law  which  relates  to  the  dissolution  of 
banks  and  the  placing  of  them  in  the  hands  of  receivers, 
as  the  law  in  regard  to  receiverships,  etc.,  is  not  wholly 
covered  by  the  National  Banking  Act,  but  is  to  a  large 
extent  that  laid  down  in  the  Revised  Statutes  and  the 
Civil  Codes  of  the  several  States  in  reference  to  receiver- 
ships in  general. 

While  the  statute  law  on  the  subject  is  very  strict  and 
rigorous  in  its  dealings  with  all  violators  of  its  commands, 
or  failures  to  comply  with  its  provisions,  yet  the  extreme 
penalties  provided  are  not  always  enforced,  as  great  in- 
terests would  often  be  seriously  damaged  by  a  rigid  en- 
forcement of  those  provisions  which  are  meant  not  for 
the  oppression  of  banks  but  rather  for  the  protection  of 
the  general  public.  These  are  considerations  which  al- 
ways weigh  with  the  bank  examiners  and  the  officials 
who  act  upon  their  reports. 

In  cases  of  great  money  stringency  or  panics,  it  is  sel- 
dom that  some  of  the  banks  do  not  violate  one  or  more 


NATIONAL   BANKS.  89 

of  the  injunctions  of  the  national  banking  law ;  but  it 
would  be  obviously  ruinous,  not  only  to  the  interests  of 
the  community  in  which  such  bank  is  situated,  but  often- 
times to  the  country  at  large,  to  forfeit  the  charter  of  a 
bank  for  some  minor  offence.  And  while  it  is  not  in- 
tended that  bank  officials  should  be  allowed  to  violate  or 
fail  to  comply  with  the  law,  still  it  may  be  remembered 
that  all  the  actions  of  the  bank  examiners  and  others  are 
or  should  be  tempered  by  that  good  sense  which  is  al- 
lowed them  under  the  expansive  expression,  "  in  the  dis- 
cretion of  the  Comptroller,"  and  it  is  wise  for  all  interests 
that  a  competent  and  honest  Comptroller  should  have 
the  right  to  exercise  his  discretion. 

Upon  the  putting  of  a  bank  into  the  hands  of  a 
receiver,  it  is  then  in  the  hands  of  the  Courts,  the  same 
as  any  other  receivership,  and  is  therefore  subject  to  the 
laws  governing  receiverships,  with  the  single  exception 
that  the  circulating  notes  of  such  bank,  being  secured  by 
a  deposit  of  United  States  bonds,  are  redeemed  by  the 
Government,  and  the  bonds  held  as  collateral  sold ;  the 
surplus  resulting  from  such  sale,  after  the  incidental  ex- 
penses are  paid,  is  turned  over  to  the  receiver  and  paid 
out  by  him  by  way  of  dividends  on  obligations  of  the 
bank.  Should  a  surplus  still  remain,  it  is  paid  over  to 
the  shareholders. 

All  other  claims  against  a  defunct  national  bank  are 
collected  in  the  manner  like  claims  are  recovered  against 
any  other  corporation  insolvent  or  in  liquidation. 


CHAPTER  III. 

State  Banks — New  York  State  Banks  of  Deposit,  and  Banking  Law. 

State  Banks. — State  Banks  are  organized  under  and 
exist  subject  to  the  laws  of  the  State  in  which  they  are 
located,  and  inasmuch  as  we  are  now  the  proud  possessors 
of  forty-four  States,  even  if  some  have  not  yet  reached  the 
stage  of  maturity  where  they  can  rejoice  in  a  banking  law 
better  than  all  the  others,  still  there  are  too  many  State 
banking  laws  to  admit  of  even  a  digest  of  them  here.  It 
is  necessary,  however,  that  the  salient  features  of  the  bank- 
ing laws  of  the  State  of  New  York,  recognized  as  one  of 
the  best,  should  be  given. 

No  attempt  will  be  made  to  explain  the  cause  of  the 
failure  of  many  of  the  State  banking  laws  prior  to  1862, 
beyond  the  fact  that,  in  a  majority  of  cases,  they  imposed 
insufficient  restrictions  in  relation  to  the  issue  of  circulat- 
ing notes,  allowing  notes  to  be  issued  against  railroad 
bonds,  and  in  some  instances  against  real  estate ;  permit- 
ting loans  on  real  estate  (which  is  always  considered  poor 
policy  for  a  bank  of  deposit,  as  real  estate  is  not  readily 
convertible  into  cash),  imposed  no  extra  liability  on  di- 
rectors, and  permitted  the  banks'  own  stock,  to  be  pledged 
as  security  for  loans  ;  but  most  important  of  all,  they  pro- 
vided for  no  given  percentage  of  coin  or  bullion,  or,  at  any 
rate,  an  insufficient  percentage  for  the  redemption  of  cir- 
culating notes.  The  banks,  not  being  required  to  keep  a 
certain  percentage  of  gold  and  silver  on  hand  in  the  shape 

90 


STATE  BANKS.  91 

of  a  redemption  fund,  did  not  do  so,  and  when  the  crisis 
came  there  was  comparatively  little  "  lawful  money  "  to 
be  had  ;  what  little  there  was  at  once  commanded  a  large 
premium,  and,  owing  to  the  then  lack  of  telegraph  and 
transportation  facilities,  it  was  not  possible  to  have  Lon- 
don or  New  York  come  to  the  rescue,  as  it  is  to-day.  In 
other  words,  whatever  the  object  may  have  been,  the 
effect  of  this  lack  of  provision  for  a  sufficient  specie  re- 
demption fund  was  to  greatly  increase  the..amount  of  cir- 
culating notes  without  increasing  the  supply  of  the  only 
thing  in  which  they  could  be  redeemed?  Nor  were  these 
banks,  for  the  reason  just  given,  in  any  better  position  to 
redeem  the  notes  of  any  other  bank,  no  matter  how  sol- 
vent, than  their  own  ;  and  the  moment  it  was  desired  to 
use  these  notes  outside  of  the  State  in  which  they  were 
issued,  it  could  only  be  done  at  a  discount  proportionate 
to  the  cost  of  transportation  to  their  bank  of  issue,  the 
shipment  back  of  the  coin  or  bullion  therefor,  and  the  risk 
of  the  notes  not  being  paid.  These  were  the  principal 
causes  of  the  variations  in  the  price  of  paper  money  issued 
by  State  banks. 

What  was  a  possible  condition  in  the  West  between 
1820  and  1860,  a  period  when  State  government  was,  to 
say  the  least,  in  a  formative  stage,  when  banking  was  sim- 
ply being  experimented  with,  when  what  are  now  large 
cities  were  little  more  than  villages  of  a  few  hundred  in- 
habitants and  these  widely  separated,  when  the  only 
means  of  communication  between  town  and  town  was  that 
furnished  by  the  country  roads  or  the  steamers  plying  on 
our  rivers,  is  not  possible  to-day,  with  the  instant  means 
of  communication  afforded  by  the  telegraph,  and  the  re- 
liable information  obtainable  from  mercantile  agencies, 
who  have  the  financial  rating  of  every  institution  and  firm 
in  the  country.  In  other  words,  what  was  possible 
in  a  state  of  chaos  and  general  irresponsibility,  is  not  pos- 
sible where  order  prevails,  and  the  fullest  information  is 


92  PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

instantly  obtainable.  Hence  it  is  not  fair  to  assume  that, 
because  the  issue  of  State  bank-notes  in  the  West  was 
unsuccessful  then,  it  would  necessarily  be  so  now.  In 
speaking  of  State  banks,  there  has  been  a  general  dispo- 
sition to  term  the  systems  of  all  States,  without  discrimi- 
nation, "  wild-cat  "  and  "  yellow-dog  "  banking,  and  to 
speak  of  the  circulating  notes  of  all  State  banks  in  these 
decidedly  inelegant  but  generally  understood  terms. 

These  words,  however,  when  applied  to  the  bank-notes 
or  banking  systems  prevailing  in  Indiana  from  1834  down 
to  1850,  that  of  (Aio  from  1845  to  l%54>  that  of  Louisiana 
from  1842  till  the  capture  of  New  Orleans  by  the  Federal 
forces  in  the  late  Civil  War,  and  that  of  Massachusetts, 
commonly  known  as  the  Suffolk  Bank  system,  and  also 
that  of  New  York,  which  largely  served  as  a  model  for 
the  present  National  Bank  Act,  are  absolutely  misleading 
and  false. 

These  systems  were  all  based  on  sound  principles,  many 
of  them  very  scientific,  and  they  would  doubtless,  if  not, 
so  far  as  the  issue  of  notes  is  concerned,  rendered  in- 
operative by  the  practically  prohibitory  tax  levied  by  the 
Federal  Government  on  the  circulating  notes  of  State 
banks,  have  continued  to  the  present  day  showing  satis- 
factory results.  • 

While  some  of  the  State  banking  laws  were  good  and 
calculated  to  insure  all  possible  safety  in  the  redemption 
of  circulating  notes  and  other  obligations,  it  must  be  said 
that  even  at  most,  if  modelled  on  the  National  Bank- 
ing Act  and  the  State  guaranteeing  their  notes,  they  could 
only  offer  the  guaranty  of  that  particular  State,  and  that 
could  never  be  as  generally  acceptable  a  guaranty  as  that 
of  the  Federal  Government. 

New  York  State  Banking  Laws.  In  speaking  of  the 
banking  laws  of  the  State  of  New  York  it  may  be  said 
parenthetically  that  these  laws  do  not  relate  exclusively 
to  banks  of  deposit,  but  relate  also  to  savings  banks,  trust 


STATE  BANKS.  93 

companies,  building  and  mutual  loan  associations,  co- 
operative loan  associations,  mortgage,  loan,  and  invest- 
ment corporations,  and  safe-deposit  companies,  all  of 
which  are  rightly  considered  as  belonging  to  banking. 
But  we  will  only  at  present  discuss  that  portion  of  the 
law  which  relates  to  banks  of  deposits. 
The  law  defines  "  Bank  "  as  follows  : 

"  Any  moneyed  corporation  authorized  by  law  to  issue  bills, 
or  notes,  or  other  evidences  of  debt  for  circulation  as  money, 
or  to  receive  deposits  of  money  and  commercial  paper,  and 
to  make  loans  thereon,  and  to  discount  bills,  notes,  or  other 
commercial  paper,  and  to  buy  and  sell  gold  and  silver  bullion 
or  foreign  coins,  or  bills  of  exchange." 

The  act  continues  the  State  Banking  Department,  un- 
der the  direction  of  a  superintendent,  who  is  appointed  by 
the  Governor  for  the  term  of  three  years  and  given  power 
to  appoint  a  deputy,  clerks,  and  examiners.  The  expenses 
of  his  office  are  defrayed  by  the  corporations  and  indi- 
viduals required  by  the  act  to  report  to  him. 

The  power  of  the  Superintendent  over  the  State  banks 
is  practically  the  same  as  the  power  of  the  Comptroller 
over  the  national  banks,  and  no  bank  may  transact  any 
business  without  his  approval  and  a  certificate  from  him 
that  it  has  complied  with  the  law  and  is  authorized  to  do 
business.  He  is  required  through  some  representative  to 
examine  each  banking  corporation,  other  than  savings 
banks,  at  least  once  a  year,  and  each  savings  bank  once 
in  two  years,  and  oftener  if  he  deem  it  expedient  so  to  do. 

No  examiner  shall  be  appointed  as  the  receiver  of  the 
corporation  which  he  examines. 

The  president  or  cashier  of  every  banking  corporation, 
under  the  State  laws,  is  required  at  least  once  a  year  to 
make  a  comparison  of  securities  deposited  in  the  office 
of  the  Superintendent  with  the  books  of  the  Banking 
Department. 


94  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

As  in  the  case  of  the  national  banks,  no  bank,  nor  indi- 
vidual banker,  who  issues  circulating  notes,  is  permitted  to 
commence  business  until  the  receipt  of  a  certificate  from  the 
Bank  Department  authorizing  such  commencement,  which 
certificate  is  only  issued  after  examination  as  to  the  finan- 
cial standing  of  such  bank  or  banker,  satisfactory  to  such 
department,  and  a  deposit  with  such  department  of  secu- 
rities to  the  amount  of  10  per  cent,  of  its  paid-up  capital, 
but  in  no  case  less  than  the  following  :  In  cities  containing 
500,000  or  more  inhabitants,  $100,000  ;  100,000  to  500,000 
inhabitants,  $50,000  ;  25,000  to  100,000  inhabitants,  $30,- 
ooo;  and  in  cities  of  less  population,  $25,000;  and  the  ap- 
proval of  such  securities  by  such  department.  Nor  shall  such 
bank  commence  business  until  its  president  and  cashier,  or 
treasurer,  or  secretary,  or  its  two  principal  officers,  shall 
have  made  an  affidavit  stating  that  the  whole  of  its  capital 
stock,  or  such  portion  thereof  as  by  law  shall  be  required 
to  be  paid  or  secured  before  the  commencement  of  its 
operations,  has  been  actually  paid  or  secured  to  be  paid 
according  to  law,  and  such  bank  shall  cease  to  be  a  corpo- 
ration if  such  affidavit  is  not  filed  within  a  year  from  the 
time  its  charter  is  granted. 

In  Section  14  is  found  the  principal  difference  between 
the  State  and  the  National  banking  systems  in  regard  to 
the  class  of  securities  allowed  to  be  deposited  with  the 
respective  banking  departments  : 

"  And  every  such  corporation  thereafter  proposing  to  engage 
in  such  business  [i.e.,  the  banking  business]  in  this  State,  shall 
before  engaging  in  such  business  transfer  and  assign  to  the 
Superintendent  registered  public  stocks  or  bonds  of  the  United 
States,  or  of  this  State,  or  of  any  city,  county,  town,  village,  or 
free  school  district  in  this  State  authorized  by  the  Legislature  to 
be  issued,  to  the  amount  in  value,  and  to  be  at  all  times  so 
maintained  by  the  corporation,  of  10  -per  cent,  on  its  paid-up 
capital  stock  ;  but  no  less  in  any  case  than  $100,000  in  cities 
the  population  of  which  exceeds  500,000  inhabitants,  $50,000 


Sl^ATE   BANKS.  95 

in  cities  of  100,000  inhabitants,  and  not  less  than  $30,000  in 
cities  containing  more  than  25,000  inhabitants.  Such  stocks 
must  be  registered  in  the  name  of  the  Superintendent." 

Foreign  banking  corporations  doing  business  in  the 
State  of  New  York  are  required  to  make  the  same  deposit 
as  State  banks,  and  on  failure  to  do  so  the  State  may  re- 
strain them  from  the  transaction  of  their  business  therein. 

Securities  deposited  may  be  exchanged  for  other  securi- 
ties by  the  consent  and  with  the  approval  of  the  Superin- 
tendent, and  any  excess  thereof  beyond  the  amount 
required  may  be  refunded. 

Bonds  and  mortgages  on  real  estate  may  also  be  deposited, 
with  the  approval  of  the  Superintendent,  as  part  of  the  col- 
lateral for  the  issue  of  circulating  notes,  but  in  such  case 
the  president  or  authorized  agent  of  every  corporation 
depositing  the  same  shall  annex  to  every  such  mortgage 
his  affidavit  that  the  mortgage  was  made  and  taken  in 
good  faith  for  money  loaned  by  the  corporation  which  he 
represents,  to  the  amount  therein  named,  and  that  he  has 
reason  to  believe  that  the  premises  thereby  mortgaged  are 
worth  at  least  75  per  cent,  more  than  the  amount  of  the 
mortgage.  In  the  discretion  of  the  Superintendent  the 
report  of  any  bank  examiner  shall  be  published  in  the 
State  paper,  and  in  at  least  one  daily  newspaper  in  the 
city  of  New  York,  and  also  a  paper  in  the  county  where 
the  principal  place  of  business  of  such  corporation  or 
individual  is  located. 

Section  17  is  similar  in  its  purport  to  the  provision  of 
the  National  Banking  law  in  regard  to  the  impairment  of 
the  capital,  but  instead  of  giving  the  Superintendent 
power,  if  such  impairment  is  not  made  good,  to  place  the 
bank  in  the  hands  of  a  receiver,  it  directs  the  Attorney- 
General  to  institute  proceedings  for  the  closing  of  such 
corporation  or  bank. 

In  case  banks  or  private  bankers  refuse  to  give  such  in- 


g6  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

formation  as  may  be  demanded  by  the  Superintendent  or 
his  agent,  or  submit  their  books  to  examination,  the 
Superintendent  is  not  allowed  to  take  such  heroic  meas- 
ures as  is  the  Comptroller  of  the  United  States,  but  the 
Attorney-General  must  institute  proceedings. 

Creditors  of,  or  shareholders  in,  any  State  banking 
corporation  whose  debts  or  shares  shall  amount  to  $1000 
or  more,  may  apply  to  the  Supreme  Court  for  an  order 
permitting  and  directing  an  examination  of  the  affairs  of 
such  corporation,  and  the  Court  may  order  such  exami- 
nation to  be  made  by  a  referee,  to  ascertain  the  safety  of 
the  investments  and  the  prudence  of  the  management  of 
the  corporation  ;  the  result  of  which  examination,  with 
the  opinion  of  the  referee,  may  be  published  as  directed 
by  the  Court.  There  is  no  similar  provision  in  the  Na- 
tional Bank  Act. 

Every  corporation  subject  to  the  banking  laws  of  this 
State  shall  make  a  written  report  to  the  Superintendent 
of  Banks  in  form  prescribed  by  him  ;  in  the  case  of  a  bank 
of  deposit  at  least  once  in  three  months,  on  a  day  to  be 
designated  by  the  Superintendent. 

The  law  imposes  a  forfeiture  of  $100  by  any  bank,  and 
of  $10  by  any  other  corporation,  subject  to  the  banking 
law  for  each  day  intervening  between  the  time  such  report 
should  have  been  filed  and  the  day  when  it  actually  is 
filed,  and  also  that  any  corporation  failing  to  make  two 
successive  reports  as  required  in  Section  21,  shall  forfeit 
its  privileges  as  such  bank  and  its  business  shall  be 
closed. 

A  summary  of  each  report  other  than  those  of  savings 
banks  shall  be  published  by  the  Superintendent,  within 
thirty  days  after  the  same  shall  have  been  filed,  in  a 
paper  at  Albany,  in  which  notices  of  State  officers  are 
required  by  law  to  be  published,  and  the  separate  report 
of  each  corporation  shall  be  published  by  it  in  at  least  one 
newspaper  in  the  place  where  its  business  is  located  ;  or  if 


STATE  BANKS.  97 

there  be  no  newspaper  in  such  place,  in  the  nearest  place 
in  which  a  newspaper  is  published. 

The  Superintendent  is  required  to  render  an  annual 
report  to  the  Legislature  at  the  commencement  of  its 
first  session  similar  to  that  required  of  the  Comptroller  of 
the  Currency. 

No  corporation  shall  make  any  loan  or  discount  to  any 
person,  company,  corporation,  or  firm,  or  upon  paper  upon 
which  any  such  persons,  company,  corporation,  or  firm 
may  be  liable,  to  an  amount  exceeding  the  one  fifth  part 
of  its  capital  stock  actually  paid  in,  and  surplus.  Under 
the  national  banking  laws  no  bank  is  allowed  to  make  a 
loan  to  any  such  person  in  excess  of  10  per  cent,  of  its  cap- 
ital, but  under  both  laws  the  discount  of  bills  of  exchange 
drawn  in  good  faith  against  actually  existing  values  or 
commercial  or  business  paper  actually  negotiated  by  the 
person  issuing  the  same  shall  not  be  considered  as  a  part 
of  any  such  loan  or  discount. 

**  No  such  corporation  nor  any  of  its  directors,  officers, 
agents,  or  servants  shall  directly  or  indirectly  purchase  or  be 
interested  in  the  purchase  of  any  promissory  note  or  other  evi- 
dence of  debt  issued  by  it  for  a  less  sum  than  shall  appear  on 
the  face  thereof  to  be  due.  Every  person  violating  the  pro- 
visions of  this  subdivision  shall  forfeit  three  times  the  nominal 
amount  of  the  note  or  other  evidence  of  debt  or  purchase." 

This  provision  is  entirely  lacking  in  the  national  bank- 
ing law,  for  what  reason  is  not  apparent. 

The  surplus  profits,  from  which  alone  a  dividend  can 
be  made,  is  ascertained  by  charging  in  the  account  of 
profit  and  loss,  and  deducting  from  the  actual  profits,  all 
expenses  paid,  interest  on  debts,  and  all  losses  sustained. 
Interest  unpaid,  although  due  or  accrued  on  debts  owing 
to  the  corporation,  should  not  be  included  in  the  calcula- 
tion of  its  profits  previous  to  a  dividend.  Losses  in 
excess  of  its  undivided  profits  should  be  charged  against 


98.  PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

principal,  and  no  dividend  should  be  made  until  such 
deficit  of  capital  be  made  good. 

Any  bank  may,  after  notice  of  its  intention  so  to  do, 
make  application  signed  by  its  two  principal  officers  to 
the  Superintendent  for  leave  to  change  its  place  of  busi- 
ness to  another  in  the  same  or  an  adjoining  county,  but 
such  notice  must  be  upon  the  vote  of  a  majority  of  the 
Board  of  Directors,  accompanied  by  the  written  assent  of 
two  thirds  in  amount  of  the  stockholders. 

In  the  case  of  foreign  corporations  it  is  necessary  for 
them  to  secure  the  written  permission  of  the  Superinten- 
dent and  a  written  certificate  from  him  stating  that  such 
corporation  has  complied  with  all  of  the  provisions  of  the 
banking  law  applicable  to  it  before  it  is  authorized  to 
transact  its  business  within  this  State.  Such  permission 
and  certificate  continues  in  force  but  one  year  from  its 
date,  but  may  be  renewed  from  time  to  time  for  a  like 
period. 

Foreign  corporations  must  execute  and  file  with  the 
Superintendent  of  Banks  a  written  instrument  appointing 
him  their  true  and  lawful  attorney,  upon  whom  process 
may  be  served  in  any  legal  action  or  proceeding.  Upon 
the  service  of  such  process  upon  the  Superintendent  as 
the  attorney  he  shall  forward  a  copy  thereof  to  such 
foreign  corporation. 

"  If  it  is  made  to  appear  upon  application  of  any  creditor  or 
shareholder  in  any  such  corporation,  company,  or  association, 
residing  in  this  State,  that  the  funds  on  deposit  with  the 
Superintendent  of  Banks  are  insufficient  to  pay  in  full  the 
creditors  and  shareholders  residing  in  this  State,  or  that  it  is 
insolvent,  or  has  suspended  business,  or  that  insolvency  or 
bankruptcy  proceedings  have  been  taken  against  it  either 
voluntarily  or  involuntarily,  the  Supreme  Court  may,  upon  due 
notice  to  the  corporation,  company,  or  association,  as  the  court 
shall  prescribe,  appoint  a  receiver  of  such  funds  ;  and  pending 
such  application,  the  court  or  judge  thereof  may  enjoin  the 


STATE  BANKS.  99 

commencement  or  prosecution  of  any  other  action  or  proceed- 
ing against  such  corporation,  company,  or  association.  Upon 
the  qualifications  of  such  receiver,  the  Superintendent  of  Banks 
shall  pay  over  to  him  the  funds  remaining  in  his  hands  less  any 
charges  which  he  may  have  against  the  same,  and  the  receiver 
shall  distribute  such  funds  among  the  creditors  and  share- 
holders of  the  corporation,  company,  or  association  residing  in 
this  State  in  the  manner  prescribed  by  law  for  the  payment  of 
creditors  in  the  case  of  voluntary  dissolution  of  a  corporation." 

Article  2  of  the  State  law  prescribes  more  in  detail  the 
privileges,  functions,  duties,  and  requirements  of  banks. 

Section  40  provides  that  five  or  more  persons  may 
become  a  bank  by  making,  acknowledging,  and  filing  in 
the  office  of  the  clerk  of  the  county  where  such  bank  is  to 
be  located  and  in  the  office  of  the  Superintendent  of 
Banks  a  certificate  in  duplicate,  which  shall  state,  first,  the 
name  by  which  such  bank  is  to  be  known  ;  second,  the 
city,  town,  or  village  where  its  business  is  to  be  con- 
ducted ;  third,  the  amount  of  its  capital  stock,  and  the' 
number  of  shares  into  which  the  same  shall  be  divided ; 
fourth,  the  names  and  places  of  residence  of  the  stock- 
holders and  the  number  of  shares  held  by  each  ;  fifth,  the 
dates  at  which  such  corporation  shall  commence  and 
terminate  ;  sixth,  the  number  of  directors  of  the  bank 
(not  less  than  five),  and  the  names  of  the  stockholders  who 
shall  be  directors  for  the  first  year  of  its  incorporation. 

This  certificate  must  be  recorded  by  the  county  clerk 
and  by  the  Superintendent  of  Banks  in  books  kept  by 
them  respectively  for  that  purpose. 

Provision  may  be  made  in  such  certificate  for  an 
increase  of  the  capital  stock,  for  the  manner  in  which  the 
stock  of  the  corporation  may  be  transferred,  the  number 
of  directors  necessary  to  constitute  a  quorum,  and  for  the 
time  when  the  annual  election  of  directors  shall  be  held. 

Any  change  in  any  of  the  matters  enumerated  in  such 
certificate  shall  only  become  valid  upon  the  execution  of 


IOO         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

a  certificate  thereof  filed  and  recorded  in  like  manner  as 
the  certificate  of  incorporation. 

An  individual  banker  desiring  to  transact  business 
under  the  State  banking  laws  must  file  a  certificate  similar 
to  the  above,  and  for  failure  so  to  do  is  subject  to  a  forfeit 
of  $1000  to  the  people  of  the  State  for  each  neglect. 
Since  the  enactment  of  the  National  Banking  Act  there 
has  been  no  inducement  to  private  bankers  to  avail  them- 
selves of  the  provisions  of  the  State  law,  and  as  none 
now  issue  circulating  notes,  they  prefer  to  conduct  their 
business  without  State  interference. 

Section  43  enumerates  the  general  powers  granted. 

"  In  addition  to  the  powers  conferred  by  the  general  and 
stock  corporation  laws  every  bank  shall  have  power  : 

"  i.  To  exercise  by  its  board  of  directors,  or  duly  authorized 
officers  or  agents,  subject  to  law,  all  such  incidental  powers  as 
shall  be  necessary  to  carry  on  the  business  of  banking  ;  by  dis- 
counting and  negotiating  promissory  notes,  drafts,  bills  of 
exchange,  and  other  evidences  of  debt  ;  by  receiving  deposits  ; 
by  buying  and  selling  exchange,  coin,  and  bullion  ;  by  loaning 
money  on  personal  security  ;  and  by  obtaining,  issuing,  and 
circulating  notes  according  to  the  provisions  of  this  chapter. 

"  2.  To  take  and  become  the  owner  of  any  stock  or  bonds  or 
interest-bearing  obligations  of  the  United  States,  or  of  the 
State  of  New  York,  or  of  any  city,  county,  town,  or  village  of 
this  State,  the  interest  on  which  is  not  in  arrears. 

"  3.  To  purchase,  hold,  and  convey  real  property  for  the 
following  purposes  : 

"  (a)  Such  as  shall  be  necessary  for  its  immediate  accommo- 
dation in  the  convenient  transaction  of  its  business. 

"  (b)  Such  as  shall  be  mortgaged  to  it  in  good  faith,  by  way 
of  security  for  loans  made  by,  or  moneys  due  to,  such  corpora- 
tion. 

"  (c)  Such  as  shall  be  conveyed  to  it  in  satisfaction  of  debts 
previously  contracted  in  the  course  of  its  dealings. 

"  (d)  Such  as  it  shall  purchase  at  sales  under  judgments, 
decrees,  or  mortgages  held  by  it. 


STATE  BANKS.  IOI 

"  No  such  corporation  shall  purchase,  hold,  or  convey  real 
property  in  any  other  case  or  for  any  other  purpose,  and  all 
conveyances  of  real  property  shall  be  made  to  it  directly  and 
by  name. 

"  All  such  corporations  and  all  individual  bankers  shall  be 
banks  of  discount  and  deposit  as  well  as  of  circulation,  and  the 
usual  business  of  banking  of  such  corporations  or  individual 
bankers  shall  be  transacted  at  the  place  where  such  corpora- 
tions or  individual  bankers  shall  be  located,  agreeably  to  the 
location  specified  in  the  certificates  required  by  law  to  be  made 
by  them  respectively,  and  filed  in  the  office  of  the  Superintend- 
ent of  Banks,  and  not  elsewhere,  except  as  otherwise  provided 
in  this  chapter  in  relation  to  the  redemption  of  circulating 
notes  by  agents." 

By  Section  44  every  bank  or  individual  banker  is  re- 
quired at  all  times  to  have  on  hand  in  "  lawful  money  "  of 
the  United  States,  when  such  bank  or  banker  transacts 
its  or  his  business  in  a  city  of  more  than  eight  hundred 
thousand  inhabitants,  at  least  15  per  cent,  of  the  aggregate 
amount  of  its  or  his  deposits,  and  at  least  10  per  cent,  of 
such  deposits  if  such  business  is  transacted  elsewhere  in 
the  State.  This  amount  shall  be  called  its  "  Lawful  Money 
Reserve." 

One  half  of  such  reserve  may  consist  of  moneys  on 
deposit,  subject  to  call,  with  any  bank  or  trust  company 
in  this  State  having  a  capital  of  not  less  than  $200,000, 
and  approved  by  the  Superindendent  of  Banks  as  a 
depository  of  "  Lawful  Money  Reserve." 

If  the  "  Lawful  Money  Reserve  "  of  any  bank  or  indi- 
vidual banker  shall  be  less  than  the  amount  above  stated, 
then  such  bank  or  banker  shall  not  increase  his  liabilities 
by  making  any  new  loans  or  discounts  "  otherwise  than  by 
discounting  bills  of  exchange  payable  on  sight,"  nor  shall 
it  or  he  declare  dividends  or  profits  until  such  lawful 
money  reserve  has  been  restored. 

The  Superintendent  of  Banks  -may  require  such  bank 


102         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

or  banker  to  make  good  such  money  reserve,  and  if  it  or 
he  shall  fail  for  thirty  days  so  to  do  such  bank  or  individ- 
ual banker  shall  be  deemed  insolvent  and  may  be  pro- 
ceeded against  as  an  insolvent  moneyed  corporation. 

The  act  of  April  23,  1895,  which  repeals  sections  forty- 
five,  forty-six,  forty-seven,  and  forty-eight  of  the  banking 
law,  and  which  went  into  effect  immediately,  provides, 
that  any  two  or  more  corporations,  except  savings  banks, 
organized  under  the  banking  law  or  any  section  thereof, 
are  authorized  to  consolidate  upon  compliance  with  the 
following  conditions :  The  boards  of  directors  of  the  re- 
spective corporations  may  enter  into  an  agreement  of 
merger  under  their  respective  corporate  seals,  which 
agreement  shall  be  subject  to  the  approval  of  the  Super- 
intendent of  Banks,  and  which  shall  be  submitted  to  the 
stockholders  of  each  of  such  corporations,  at  a  meeting, 
called  upon  at  least  two  weeks'  notice,  and  published  for 
at  least  two  successive  weeks  in  a  newspaper  in  the  coun- 
ties in  which  such  corporations  are  located,  and  which 
agreement  shall  be  approved  at  each  of  such  meetings  of 
the  respective  stockholders  separately  by  stockholders 
owning  at  least  two  thirds  of  the  stock ;  such  agreement 
and  verified  copies  in  duplicate  of  the  proceedings  of  the 
stockholders  of  the  respective  corporations  shall  be  filed 
with  the  Superintendent  of  Banks,  and  with  the  clerk  of 
the  county  of  the  domicil  of  the  corporation  into  which 
the  other  is  merged.  Upon  which  the  merger  is  deemed 
consummated,  and  the  consolidated  corporation  may  call 
in  the  stock  of  the  old  corporations,  and  issue  new  stock. 

Any  stockholder  not  voting  in  favor  of  such  merger, 
may  at  such  meeting  or  within  twenty  days  thereafter 
object  to  such  merger  and  demand  payment  for  his  stock. 

The  consolidated  corporation  shall  have  all  the  rights, 
powers,  and  privileges  of  the  old  companies,  and  be  re- 
sponsible for  their  debts  and  obligations. 

At  least  50  per  cent,  of  the  capital  stock  of  every  bank 


STATE  BANKS.  1 03 

shall  be  paid  in  before  it  shall  commence  business,  and  the 
remainder  of  its  capital  stock  shall  be  paid  in  instalments 
of  at  least  10  per  cent,  each  on  the  whole  amount  of  the 
capital,  as  frequently  as  one  instalment  at  the  end  of  each 
succeeding  month  from  the  time  it  shall  be  authorized  by 
the  Superintendent  of  Banks  to  commence  business,  and 
the  payment  of  each  instalment  shall  be  certified  to  the 
Superintendent  under  oath  by  the  president  or  cashier  of 
the  corporation. 

Only  citizens  of  the  United  States  are  eligible  as  direc- 
tors, and  at  least  three  fourths  of  the  directors  must  be 
citizens  of  the  State,  and  in  case  of  a  bank  having  a  capi- 
tal of  $50,000  or  over,  each  director  must  own  in  his  own 
right  stock  of  the  bank  equal  in  value  to  $1000,  and  in 
case  of  a  bank  having  a  less  capital  than  $50,000  must  be 
a  stockholder  in  his  own  right  to  an  amount  equal  to  at 
least  $500,  such  directorship  to  terminate  upon  his  ceas- 
ing to  possess  such  amount  of  stock.  Directors  shall  hold 
office  for  one  year  and  until  their  successors  are  elected 
and  have  qualified.  The  president  is  to  be  chosen  from 
among  the  Board  of  Directors. 

Each  director,  when  appointed  or  elected,  shall  take  an 
oath  that  he  will,  so  far  as  the  duty  devolves  on  him, 
diligently  and  honestly  administer  the  affairs  of  such  cor- 
poration, and  will  not  knowingly  violate,  or  willingly  per- 
mit to  be  violated,  any  of  the  provisions  of  law  applicable 
to  such  corporation,  and  that  he  is  the  owner  in  good  faith 
and  in  his  own  right  of  the  number  of  shares  of  stock  re- 
quired by  this  chapter,  subscribed  by  him  or  standing  in 
his  name  on  the  books  of  the  corporation,  and  that  the 
.same  is  not  hypothecated,  or  in  any  way  pledged  as 
security  for  any  loan  or  debt.  Such  oath  shall  be  sub- 
scribed by  the  director  making  it,  and  certified  by  the 
officer  before  whom  it  is  taken,  and  shall  be  immediately 
transmitted  to  the  Superintendent  of  Banks,  and  filed  and 
preserved  in  his  office. 


104         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

"  Except  as  prescribed  in  the  stock  corporation  law,  the 
stockholders  of  every  such  corporation  shall  be  individually 
responsible,  equally  and  ratably,  and  not  one  for  another,  for 
all  contracts,  debts,  and  engagements  of  such  corporation  to  the 
extent  of  the  amount  of  their  stock  therein  at  the  par  value 
thereof,  in  addition  to  the  amount  invested  in  such  shares. 

"  The  term  '  stockholder/  when  used  in  this  chapter,  shall 
apply  not  only  to  such  persons  as  appear  by  the  books  of  the 
corporation  to  be  stockholders,  but  also  to  every  owner  of 
stock,  legal  or  equitable,  although  the  same  may  be  on  such 
books  in  the  name  of  another  person,  but  not  a  person  who 
may  hold  the  stock  as  collateral  security  for  the  payment  of  a 
debt." 

A  stockholder  who  in  good  faith  and  without  intent  to 
evade  his  liability  as  a  stockholder  transfers  his  stock  on 
the  books  of  the  corporation,  when  such  corporation  is 
solvent,  to  any  resident  of  this  State  of  full  age,  is  relieved 
of  the  responsibility  of  a  stockholder,  and  such  responsi- 
bility devolves  upon  the  person  to  whom  the  stock  is 
transferred. 

All  contracts  and  all  notes  and  bills  issued  by  it  and 
put  in  circulation  as  money  shall  be  signed  by  the  presi- 
dent or  vice-president  and  cashier. 

The  rate  of  interest  permitted  to  be  charged  is  6  per 
cent.,  which  interest  may  be  taken  in  advance,  reckoning 
the  days  for  which  the  evidence  of  debt  has  to  run. 

Knowingly  taking,  receiving,  reserving,  or  charging  a 
greater  rate  of  interest  forfeits  the  entire  interest  which 
the  note,  bill,  or  other  evidence  of  debt  carries  with  it,  or 
which  has  been  agreed  to  be  paid  thereon,  and  the  person 
paying  the  same  may  recover  back  twice  the  amount  of 
interest  thus  paid,  provided  such  action  is  brought  within 
two  years  from  the  time  such  excessive  interest  is  taken, 
but  the  discount  of  a  bill  of  exchange,  note,  or  other  evi- 
dence of  debt  payable  at  some  other  place  than  the  place 
of  purchase,  discount,  or  sale,  at  not  more  than  the  cur- 


STATE   BANKS.  10$ 

rent  rate  of  exchange  for  sight  drafts,  or  a  reasonable 
charge  for  the  collection  of  the  same  in  addition  to  the 
interest,  shall  not  be  considered  as  taking  or  receiving  a 
greater  rate  of  interest  than  6  per  cent,  per  annum. 

The  avowed  object  of  this  section  is  to  place  and  main- 
tain State  banks  on  an  equality  in  this  particular  with 
national  banks. 

An  exception  is  made  to  the  above  rule  in  the  case  of 
advances  of  money  repayable  on  demand  to  an  amount  of 
not  less  than  $5000  upon  warehouse  receipts,  bills  of  lad- 
ing, certificates  of  stock,  certificates  of  deposit,  bills  of 
exchange,  bonds,  or  other  negotiable  instruments  pledged 
as  collateral,  when  the  banks  and  the  borrower  may  agree 
upon  any  rate  of  interest  they  choose. 

In  addition  to  securities  deposited  as  collateral  to  its 
circulating  notes,  each  bank  or  banker  before  commencing 
business  shall  place  and  keep  on  deposit  with  the  Super- 
intendent of  Banks,  stocks  of  this  State  or  of  the  United 
States  bearing  interest  to  the  amount  of  $1000,  to  be 
held  as  a  pledge  of  good  faith  and  a  guaranty  of  compli- 
ance with  the  banking  laws  of  the  State  on  the  part  of 
such  bank  or  individual  banker,  out  of  which  interest  the 
Superintendent  may  retain  any  assessments  or  penalties 
imposed  upon  such  bank  or  individual  banker  after  the 
institution  of  proper  legal  proceedings. 

Section  50  makes  provision  for  the  change  of  a  State  to 
a  National  bank.  This  is  already  detailed  in  the  chapter 
on  National  Banks. 

Incorporation  as  a  National  bank  is  deemed  a  surrender 
of  its  charter  as  a  State  bank,  and  it  shall  cease  to  be  a 
corporation  under  the  laws  of  the  State,  except  that  for 
the  term  of  three  years  thereafter  its  corporate  existence 
shall  be  deemed  to  continue  for  the  purpose  of  prosecut- 
ing and  defending  suits  by  and  against  it  and  of  enabling 
it  to  close  its  concerns  and  to  dispose  of  and  convey  its 
property.  Such  change,  however^  shall  not  release  any 


106         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

bank  from  its  obligation  to  pay  and  discharge  all  the 
liabilities  created  by  law,  or  incurred  by  it  before  such 
change. 

Upon  such  change  the  plates  and  dies  of  any  such  bank 
in  the  Banking  Department  shall  be  forthwith  so  obliter- 
ated as  to  prevent  all  future  use  of  the  same. 

Section  63  :  "  Whenever  any  banking  corporation,  organized 
and  doing  business  under  the  laws  of  the  United  States,  shall 
under  the  provisions  of  any  act  of  Congress  be  authorized  to 
dissolve  its  organization  as  such  national  bank  corporation, 
and  shall  have  taken  the  action  required  to  effect  such  dissolu- 
tion, a  majority  of  the  directors  of  such  dissolved  corporation 
may,  upon  the  authority  in  writing  of  the  owners  of  two  thirds 
of  its  capital  stock,  execute  the  certificate  of  incorporation  re- 
quired by  Section  40  of  this  chapter. 

"  Upon  the  execution  and  proof  of  acknowledgment  of  such 
certificate,  which  shall  also  set  forth  the  authority  in  writing  of 
the  stockholders  as  required  by  this  section,  and  upon  filing  a 
copy  thereof  in  the  office  of  the  Superintendent  of  Banks,  with 
proof  that  the  original  is  duly  recorded  in  the  office  of  the 
clerk  of  the  county  where  any  office  of  such  corporation  shall 
be  located,  such  corporation  shall  be  held  and  regarded  as  an 
incorporated  bank  under  and  in  pursuance  of  the  laws  of  this 
State,  and  shall  be  entitled  to  all  the  privileges  and  be  subject 
to  all  the  liabilities  of  banks  so  incorporated  ;  and  thereupon 
all  the  property  of  the  dissolved  national  bank  corporation 
shall  immediately  by  act  of  law  and  without  any  conveyance 
or  transfer  be  vested  in  and  become  the  property  of  such  State 
bank.  The  directors  of  the  dissolved  corporation  at  the  time 
of  such  dissolution  shall  be  the  directors  of  the  bank  created 
in  pursuance  hereof  until  the  first  annual  election  of  directors 
thereafter,  and  shall  have  power  to  take  all  necessary  measures 
to  perfect  its  organization,  and  to  adopt  such  regulations  con- 
cerning its  business  and  management  as  may  be  proper  and 
just  and  not  inconsistent  with  law." 

The  section  relating  to  Circulating  notes,  plates,  etc., 
will  be  here  omitted,  as  State  banks  no  longer  issue  circu- 


STATE  BANKS.  IO/ 

lating  notes,  only  one  bank  having  out  an  issue  of  about 
$2400.  The  sections  relating  to  the  issue  of  notes,  de- 
posit of  securities  to  insure  their  payment,  and  other  mat- 
ters connected  therewith  are  consequently  omitted. 

Section  76.  After  the  application  of  the  proceeds  of 
such  security  to  the  redemption  of  the  circulating  notes 
presented  within  the  time  prescribed  by  Section  73,  the 
residue  of  such  proceeds  shall  be  deposited  in  the  Treasury 
and  applied  toward  paying  the  ordinary  expenses  of  the 
Banking  Department. 

Notices  required  to  be  given  to  creditors  of  insolvent 
banks  shall  be  published  at  least  six  weeks  in  one  or  more 
newspapers  selected  by  the  Superintendent. 

Section  79.  Any  bank  or  its  receiver  or  agents  and 
any  individual  banker  or  his  legal  representative  or  suc- 
cessor may  give  notice  to  the  superintendent  of  their  or 
his  intention  to  close  business. 

After  the  payment  of  all  lawful  claims  and  demands 
against  such  bank  or  banker  they  or  he  may  divide  the 
remaining  property  of  the  bank  or  banker  among  the 
stockholders  or  their  personal  representatives. 

Section  82  prohibits  the  circulation  of  foreign  bank 
notes,  by  which  is  meant  the  notes  of  any  bank  situated 
outside  of  the  State  of  New  York. 

Section  83  provides  that  no  bank  shall  pay  out  for 
paper  discounted  or  purchased  any  circulating  note  not 
received  by  such  bank  at  par. 

No  bank  or  individual  banker  shall  issue  or  put  in  cir- 
culation any  bill  or  note  of  such  bank  or  banker  unless 
the  same  shall  be  made  payable  on  demand  and  without 
interest,  except  bills  of  exchange  on  foreign  countries  or 
places  beyond  the  limits  or  the  jurisdiction  of  the  United 
States,  which  bills  may  be  made  payable  at  or  within  the 
customary  usance,  or  at  or  within  ninety-days'  sight,  and, 
except  certificates  of  deposit  payable  on  presentation, 
with  or  without  interest,  to  bearer  or  to  the  order  of  a 


108         PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

person  named  therein  ;  but  no  such  certificate  of  deposit 
shall  be  issued  except  as  representing  money  actually  on 
deposit. 

"All  checks,  bills  of  exchange,  or  drafts  appearing  on  their 
face  to  have  been  drawn  upon  any  bank  or  individual  banker 
carrying  on  banking  business  under  the  laws  of  this  State, 
which  are  on  their  face  payable  on  any  specified  day  or  in  any 
number  of  days  after  date  or  sight  thereof,  shall  be  due  and 
payable  on  the  day  mentioned  for  the  paymeiit  of  the  same, 
without  any  days  of  grace  being  allowed,  and  it  shall  not  be 
necessary  to  protest  the  same  for  non-acceptance." 

By  the  Act  of  May  9,  1894,  "  on  all  notes,  drafts,  checks, 
acceptances,  bills  of  exchange,  bonds,  or  other  evidences  of 
indebtedness  made,  drawn,  or  accepted  by  any  person  or  cor- 
poration after  this  act  shall  take  effect  and  in  which  there  is 
no  expressed  stipulation  to  the  contrary,  no  grace,  according 
to  the  custom  of  merchants,  shall  be  allowed,  but  the  same 
shall  be  due  and  payable,  as  therein  expressed,  without  grace. 

"  This  act  shall  take  effect  and  be  in  force  on  the  ist  day  of 
January,  1895." 

Section  88. — "  No  foreign  corporation,  other  than  a  national 
bank,  shall  keep  any  office  for  the  purpose  of  receiving  de- 
posits, or  discounting  notes  or  bills,  or  issuing  any  evidence  of 
debt  to  be  loaned  or  put  in  circulation  as  money  within  this 
State." 

Section  89. — "  No  bank  in  this  State  or  any  officer  or  di- 
rector thereof,  shall  open  or  keep  an  office  of  deposit  or  dis- 
count other  than  at  its  usual  place  of  business. 

"  Every  such  officer  or  director  violating  the  provisions  of 
this  section  shall  forfeit  to  the  people  of  the  State  the  sum  of 
$1000  for  every  such  violation." 

Section  90. — "  No  person  shall  pay,  give,  or  receive  in  pay- 
ment, or  in  any  way  circulate  or  attempt  to  circulate  any  bank 
bill  or  any  promissory  note,  bill,  check,  draft,  or  other  evi- 
dence of  debt,  issued  by  any  bank  or  individual  banker,  which 
shall  be  made  payable  otherwise  than  in  lawful  money  of  the 
United  States. 


STATE   BANKS.  1 09 

"  Every  person  violating  this  provision  shall  forfeit  to  the 
people  of  the  State  the  face  amount  or  value  of  such  bill,  note, 
or  other  evidence  of  debt  so  given,  paid,  received,  circulated, 
or  offered,  to  any  person  who  will  sue  for  the  same  sixty  days 
after  the  commission  of  the  offence." 

Section  91. — "All  bills,  notes,  or  other  instruments  which 
shall  be  issued  by  any  bank  or  individual  banker  purporting 
to  be  received  in  payment  of  debts  due  to  it,  shall  be  deemed 
and  taken  to  be  promissory  notes  for  the  payment  on  demand 
of  the  sum  or  value  expressed  in  such  instrument,  and  such 
sum  shall  be  recoverable  by  the  holder  or  bearer  of  such  in- 
strument, in  like  manner  as  if  the  same  were  a  promissory 
note." 

Section  92. — "No  person  engaged  in  the  business  of  bank- 
ing in  this  State,  not  subject  to  the  supervision  of  the  superin- 
tendent and  not  required  to  report  to  him  by  the  provisions  of 
this  chapter,  shall  make  use  of  any  office  sign  at  the  place 
where  such  business  is  transacted,  having  thereon  any  artificial 
or  corporate  name,  or  other  words  indicating  that  such  place 
or  office  is  the  place  or  office  of  a  bank  ;  nor  shall  such  per- 
son or  persons  make  use  of  or  circulate  any  letter-heads,  bill- 
heads, blank  notes,  blank  receipts,  certificates,  circulars,  or 
any  written  or  printed  or  partly  written  and  partly  printed 
paper  whatever,  having  thereon  any  artificial  or  corporate 
name,  or  other  word  or  words,  indicating  that  such  business  is 
the  business  of  a  bank. 

"  Every  person  violating  this  provision  shall  forfeit  the  sum 
of  $1000.  But  this  section  shall  not  apply  to  any  person  or 
persons  engaged  in  the  business  of  banking  prior  to  October, 
1892." 


CHAPTER   IV. 

Methods  of  Business  of  Banks — Loans — Mutual  Assistance — Over-Certifi- 
cation— Reclamation — Management — Board  of  Directors — Officers  and 
Employes. 

Methods  of  Business. — The  method  of  conducting 
business  is  in  a  general  way  the  same  in  all  banks,  whether 
national,  State,  savings,  or  private.  They  all  receive  money 
from  their  depositors,  on  which  savings  banks  and  some 
private  banks  allow  interest,  but  State  and  national  banks 
generally  do  not.  This  money  is  again  loaned  at  a  higher 
rate  of  interest  than  that  paid  to  the  depositors  ;  the  dif- 
erence  in  rate  between  the  interest  paid  and  the  interest 
received  constituting  the  entire  income  of  savings  banks 
and  forming  the  principal  income  of  all  banks. 

Of  course,  in  the  different  banks  the  loans  made  by 
them  assume  a  different  form,  the  law  prescribing  that 
banks  of  deposit  may  negotiate  loans  on  commercial 
paper  and  personal  securities,  the  National  law  forbid- 
ding banks  organized  under  it  to  loan  on  real  estate. 
Consequently,  the  bulk  of  all  loans  made  by  banks  of  de- 
posit must  be  on  commercial  paper  and  personal  security. 

The  laws  of  the  State  of  New  York  forbid  savings 
banks  loaning  on  commercial  paper,  and  specify,  with 
great  particularity,  the  kind  of  collateral  on  which  they 
may  make  loans,  including  in  that  collateral  first  mort- 
gages on  real  estate, — hence,  a  very  large  portion  of  their 
loans  are  made  on  real  estate. 

no 


METHODS  OF  BUSINESS  OF  BANKS.  Ill 

Banks  of  deposit,  at  one  time,  received  a  large  income 
from  acting  as  the  fiscal  agent  of  corporations,  but  this 
business  has  been  almost  entirely  absorbed  by  trust  com- 
panies and  private  bankers,  which,  on  account  of  their 
fewer  governmental  restrictions,  can  offer  greater  accom- 
modations to  the  companies  for  which  they  act  when  such 
companies  are  in  need  of  assistance. 

Another  source  of  revenue  was  in  acting  as  the  agent  of 
the  Federal  Government  for  the  sale  and  registration  of 
United  States  bonds.  This,  however,  no  longer  exists. 

Although  loans  of  banks  of  deposit,  other  than  the  dis- 
count of  commercial  paper,  are  based  generally  on  stocks, 
shares,  warehouse  receipts,  bills  of  lading,  or  certificates 
representing  the  ownership  of  some  commodity,  as  a 
broad  proposition  it  may  be  said  that  anything  which 
possesses  a  real  tangible  value  is  dealt  in  and  money  can 
be  obtained  upon  it. 

Domestic  exchange  is  also  a  source  of  large  revenue  to 
both  national  and  State  banks  of  deposit. 

Mutual  Assistance  of  Banks. — Any  careful  study  of 
the  capital,  surplus,  amount  of  loans,  etc.,  of  the  banks  of 
any  large  city  in  this  country,  and  more  particularly  of 
New  York,  cannot  fail  to  convince  one  of  the  necessity  of 
banks  extending  to  each  other  assistance.  This  assist- 
ance is  rendered  only  on  a  business  basis,  but  could  never- 
theless be  seldom  dispensed  with,  and  certainly  not  during 
a  stringency  of  money,  when  it  is  necessary  that  all  our 
banks  should  stand  shoulder  to  shoulder,  the  stronger 
assisting  the  weaker.  A  good  illustration  of  this  was  the 
acceptance,  by  all  the  bank  members  of  the  Clearing  House, 
of  its  certificates  in  payment  of  their  daily  balances  in 
1875,  1884,  during  the  threatened  panic  following  the  em- 
barrassment of  the  Barings,  and  again  in  1893.  The  ordi- 
nary form  of  assistance  is  that  rendered  by  the  re-discount 
of  paper,  i.  e.,  where  one  bank  has  more  paper  than  it  can 
conveniently  carry,  it  re-discounts  a  portion  thereof  with 


112         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

one  or  more  banks.  This  aid  is  being  constantly  extended 
by  the  banks  in  the  larger  cities  to  those  in  the  smaller 
cities  and  towns. 

Over-Certification. — At  one  time,  the  over-certifica- 
tion of  the  checks  of  private  bankers  and  brokers  became 
such  a  common  matter,  and  one  or  two  banks  were  so 
badly  crippled  by  the  failure  to  make  good  these  over- 
certified  checks,  that  the  Comptroller  of  the  Currency 
found  it  necessary  to  threaten  to  enforce  the  provision  in 
the  National  Banking  Act  in  relation  thereto,  which  is 
placing  the  bank  in  the  hands  of  a  receiver. 

This  inability  to  over-certify  would  have  so  seriously  in- 
terfered with  the  business  of  some  few  banks  that  they 
resigned  their  National  Bank  charters  and  reorganized 
under  the  State  law,  which  is  more  liberal.  Of  course, 
this  over-certification  can  be  easily  avoided  by  the  teller 
stating  he  will  pay  the  check  in  money,  which  cannot  be 
refused. 

Reclamations. — Reclamations  of  improperly  or  irregu- 
larly drawn  or  endorsed  checks,  or  checks  which  are  not 
good  for  the  amounts  called  for,  take  place  daily  between 
the  various  banks,  each  bank  returning  to  the  other  the 
checks  drawn  against  it  which  for  any  reason  it  refuses  to 
pay  ;  the  bank  receiving  the  check  crediting  the  same  to 
the  bank  returning  it,  just  as  though  the  same  were  paid 
in  cash,  and  charging  the  amount  of  such  check  to  the 
person  depositing  it. 

Loans  on  Collateral. — The  cashier  of  the  bank  is  the 
man  to  whom  the  sufficiency  of  collateral  is  usually  re- 
ferred when  a  loan  is  sought,  and  oftentimes  loans  of  hun- 
dreds of  thousands  of  dollars  to  well  known  houses  are 
negotiated  over  the  telephone  wires,  the  houses  sending 
the  collateral  over  by  messenger.  Of  course,  these  loans 
being  usually  call  loans,  if  the  collateral  is  not  satisfactory, 
are  immediately  called  in  or  other  collateral'  demanded. 
Such  loans  are  only  made  to  houses  with  whom  the  bank 


METHODS  OF  BUSINESS  OF  BANKS.  113 

has  long  had  dealings,  and  whose  commercial  rating  is  very 
high.  The  writer  has  known  of  half  a  million  dollars 
being  negotiated  by  telephone  message.  It  is  understood 
that  the  borrower  will  furnish  satisfactory  collateral,  and 
the  loan  is  generally  simply  placed  to  the  credit  of  the 
borrower  on  the  books  of  the  bank. 

The  Management  of  a  Bank  ;  the  Officers  by  whom 
its  Business  is  Conducted,  and  their  Respective 
Duties. — Necessarily  the  management  of  a  bank  is  largely 
dependent  upon  its  location  and  the  character  and  amount 
of  its  business,  but  speaking  broadly  it  is  safe  to  say  that 
the  management  of  all  large  banks  of  deposit,  and  the 
method  and  manner  in  which  their  business  is  conducted, 
is  essentially  the  same  and  differs  only  in  detail. 

The  highest  power  of  the  bank  is  lodged  in  the  Board 
of  Directors,  whom  we  will  consider  first. 

Board  of  Directors. — In  banks  of  deposit,  both  State 
and  National,  the  Board  of  Directors  shall  consist  of  not 
less  than  five  nor  more  than  thirteen  members.  A  person 
to  be  qualified  as  a  Director  must  be  the  absolute  owner 
of  ten  unpledged  shares  of  the  capital  stock  of  said  bank, 
and  three  fourths  of  the  members  of  the  Board  must  be 
residents  of  the  State  in  which  such  bank  is  located.  The 
State  law  provides  that  in  banks  whose  capital  does  not 
exceed  $50,000,  each  director  must  be  possessed  in  his 
own  right  of  at  least  five  unpledged  shares  of  the  capital 
stock  of  such  bank  ;  in  banks  whose  capital  is  in  excess  of 
$50,000,  each  director  must  be  the  owner  of  ten  unpledged 
shares  ;  and  three  fourths  of  the  members  of  such  Board 
shall  be  residents  of  the  State,  city,  and  county  where 
such  bank  is  located. 

The  selection  of  the  directors  of  a  bank  is  largely  gov- 
erned by  the  business  which  such  directors  it  is  thought 
can  bring  to  the  bank,  the  position  they  occupy  in  the  dif- 
ferent trades  or  professions,  their  knowledge  of  the  finan- 
cial and  business  standing  of  persons  likely  to  do  business 


114         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

with  such  bank,  and  the  general  reputation  they  enjoy  in 
the  community. 

Banks  in  the  larger  cities  are  often  located  in  a  neigh- 
borhood the  business  of  which  is  almost  exclusively  con- 
fined to  one  trade.  In  New  York,  for  instance,  there  are 
banks  whose  business  is  derived  almost  solely  from  the 
dry-goods  trade,  which  banks  are  necessarily  located  in  a 
convenient  locality  to  such  trade.  Other  banks  derive 
their  business  from  other  trades.  In  the  case  of  banks 
whose  business  is  confined  largely  to  one  trade,  the  direc- 
tors are  selected  naturally  with  special  reference  to  their 
influence  in  that  trade,  and  their  knowledge  of  the  standing 
of  firms  engaged  therein. 

While  the  law  only  prescribes  that  a  director  should  be 
the  holder  of  five  or  ten  shares  of  stock,  the  judgment  of 
an  intelligent  community  dictates  that  a  director  should 
have  a  more  substantial  interest  than  this  ;  and,  as  a  mat- 
ter of  fact,  most  of  the  directors  of  banks  are  chosen,  not 
only  on  account  of  the  qualifications  before  mentioned, 
but  on  account  of  their  large  holdings  of  stock  in  the 
institutions  which  they  serve. 

In  the  first  instance,  of  course,  relying  to  some  extent 
on  the  advice  of  the  officers  of  the  bank,  who  are  sup- 
posed to  be  particularly  well  informed  as  to  the  character 
of  persons  desiring  loans,  they  settle  upon  the  amount  of 
accommodation  to  be  extended  to  each  depositor.  In  many 
banks  loans  are  only  made  upon  their  approval,  and  in 
the  first  instance  no  large  amount  of  credit  is  extended 
to  any  person,  firm,  or  corporation  without  their  sanction  ; 
and  while  the  exigencies  of  business  are  such  that  it  will 
not  permit  that  all  paper  should  be  submitted  to  them 
before  loans  are  negotiated  thereon,  still  it  is  true  that 
loans,  being  ^ade  in  many  instances  subject  to  call,  in 
order  to  stand  must  receive  the  approval  of  the  Board. 
And  as  banks  make  a  certain  class  of  loans  only  on  condi- 
tion that  they  may  call  upon  the  borrowers  at  any  time  to- 


METHODS  OF  BUSINESS  OF  BANKS.  115 

reduce  the  amount  of  their  indebtedness,  which,  taken  in 
connection  with  the  above  stated  fact  that  the  amount, 
character,  and  time  of  accommodation  are,  in  the  first  in- 
stance, prescribed  by  the  Board,  relieves  the  executive 
officer  of  much  responsibility  that  is  generally  supposed 
to  devolve  upon  him  personally. 

The  compensation  of  the  directors  is  usually  in  the  form 
of  a  charge  for  each  Board  meeting  attended,  although  in 
many  banks  they  receive  no  specific  compensation  other 
than  the  benefit  they  derive  from  the  additional  value  and 
dividends  on  their  stock  to  which  their  advice  is  supposed 
to  contribute. 

Next  in  importance  to  the  Board  of  Directors  is  the 
executive  head  of  the  bank,  generally  known  in  the 
United  States  as  the  President  ;  in  England,  in  the  case 
of  the  Bank  of  England,  as  the  Governor  ;  and  in  other 
banks  as  the  Manager,  and  in  Canada  as  the  Manager, 
General  or  Resident,  as  the  case  may  be. 

In  the  United  States  the  President  of  a  bank  is  always 
a  member  of  the  Board  of  Directors,  but  in  England  the 
Manager  is  never  a  member  of  the  Board  of  Trustees 
or  Directors. 

President. — The  President,  with  the  concurrence  and 
sanction  of  the  Board  of  Directors,  has  absolute  control 
over  the  policy  and  discipline  of  the  bank,  and  to  him  all 
the  other  officers  except  directors  are  answerable  for  the 
faithful  discharge  of  their  various  duties.  He  is  usually 
selected  with  especial  reference  to  his  knowledge  of  the 
character  of  the  business  to  be  transacted  by  the  bank 
over  which  he  is  called  upon  to  preside,  his  influence  with 
the  trade  which  the  bank  desires  to  reach,  his  knowledge 
of  credits,  and  his  general  business  reputation  in  the 
community,  on  which  so  much  depends  the  success  of  the 
bank.  It  is  his  province,  assuming  that  he  is  the  active 
head  of  the  bank,  which  in  some  cases  he  is  not — being 
occasionally  simply  a  figure-head,  but  this  is  not  generally 


Il6         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

true  in  large  banks, — to  keep  himself  not  only  thoroughly 
posted  in  regard  to  the  standing  of  the  various  persons 
with  whom  the  bank  does  business,  but  also  with  the  con- 
dition of  the  trade  in  which  those  people  are  engaged, 
because  while  the  person  or  firm  negotiating  a  loan  may 
be  perfectly  solvent,  it  must  be  borne  in  mind  that  a  large 
part  of  the  loans  of  banks  are  made  against  values  in  the 
shape  of  merchandise,  and  not  against  the  bare  paper, 
and  it  might  easily  happen,  should  the  president  of  a 
bank  or  the  person  in  charge  of  the  loans  be  ignorant  of 
the  value  of  the  merchandise  on  which  a  particular  loan 
was  negotiated,  that  that  merchandise  might  decrease  so 
rapidly  in  value  as  to  form  no  safe  security  for  the  loan, 
and  occasion  legal  proceedings  against  the  makers  of  the 
note  for  the  deficiency. 

The  president  should  have  a  pecuniary  interest  as  a 
stockholder  in  the  bank  which  he  serves.  This  may  not 
necessarily  be  larger  than  the  interest  of  other  stockhold- 
ers or  directors,  because  if  the  interest  he  has  is  his  greatest 
interest,  it  is  an  interest  sufficient  to  influence,  apart  from 
his  reputation  which  is  at  stake,  his  utmost  efforts  for  the 
benefit  and  success  of  the  institution  whose  policy  and 
business  he  is  called  upon  to  direct. 

In  his  official  capacity  the  president  is  called  upon  to 
sign  all  contracts  in  behalf  of  the  bank,  all  the  circulating 
notes,  certificates  of  stock  and  other  evidences  of  indebted- 
ness issued  by  the  bank,  save  certificates  of  deposit  and 
cashier's  checks,  which  are  signed  by  the  cashier.  The 
president  is  required  to  give  no  bonds.  All  the  lesser 
officers  holding  responsible  positions  and  having  directly 
to  do  with  the  bank's  assets,  are : 

Vice- President. — What  has  been  said  with  reference  to 
the  President  applies  with  somewhat  modified  force  to  the 
vice-president,  unless  he  should  be  the  real  head  of  the 
bank.  His  duties,  in  the  absence  or  inability  to  act  of 
the  president,  are  the  same  as  those  of  the  president.  In 


METHODS  OF  BUSINESS  OF  BANKS.  1 1/ 

the  larger  banks,  where  there  are  necessarily  many  depart- 
ments, and  even  these  are  sometimes  subdivided,  the  vice- 
president,  in  addition  to  being  called  upon  to  serve  in  the 
absence  of  the  president,  often  has  charge  of  some  partic- 
ular department,  generally  the  credit  department  ;  to  his 
duties  in  which  department  the  remarks  made  in  relation 
to  the  qualifications  of  the  president  apply. 

Cashier. — The  mechanism  of  the  bank  is  directly  under 
the  control  of  the  cashier,  who  is,  however,  accountable  to 
the  Board  of  Directors,  by  whom  he  is  appointed  and  to 
whom  he  gives  bonds  for  the  faithful  and  efficient  dis- 
charge of  the  duties,  not  only  of  himself,  but  of  his  sub- 
ordinates, over  whom  he  is  supposed  to  exercise  a  direct 
supervision. 

In  banks  where  the  president  or  vice-president  is  not 
actively  in  charge,  the  cashier  assumes  largely  the  duties 
and  responsibilities  which  the  president  would  be  called 
upon  to  assume  and  perform,  but  in  all  banks  the  cashier 
is  necessarily  conversant  with  the  general  policy  and 
management  of  the  bank,  the  line  of  credits  to  be  ex- 
tended to  its  various  depositors,  and  in  most  instances, 
either  independently  or  acting  on  the  advice  of  the  direc- 
tors, regulates  the  same,  and  must  keep  himself  acquainted 
with  the  condition  of  the  various  accounts,  so  as  to  deter- 
mine which  accounts  are  profitable  or  otherwise. 

The  cashier  is  called  upon  to  sign  all  contracts,  agree- 
ments, circulating  notes,  or  evidences  of  debt  issued  by 
the  bank,  besides  cashier's  checks  and  certificates  of  deposit. 
He  also  signs  checks  drawn  on  other  banks.  In  his  ab- 
sence they  are  signed  by  the  president  ;  also  drafts  and 
notes  sent  to  other  banks  are  endorsed  by  him. 

The  cashier  also  generally  conducts  the  correspondence 
of  the  bank,  acts  as  secretary  of  the  Board  of  Directors, 
and  keeps  the  minutes  of  all  meetings  of  the  board,  as 
well  as  of  the  stockholders. 

Assistant  Cashier. — The  assistant  cashier  usually  exer- 


Il8         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

cises  special  supervision  over  the  discount  books,  and 
attends  to  the  notes  and  bills  payable,  besides  his  principal 
duty  which  is  to  relieve  the  cashier  of  matters  of  detail, 
and  to  keep  himself  so  thoroughly  informed  in  regard  to 
the  working  of  the  bank,  the  accounts  of  depositors,  etc., 
that  he  can  readily  supply  the  cashier,  vice-president,  or 
president  with  information  in  regard  to  them.  In  many 
banks  the  correspondence  is  conducted  very  largely  over 
the  signature  of  the  assistant  cashier,  and  he  is  specially 
empowered  to  endorse  checks,  drafts,  etc.,  for  collection. 

Paying  Teller. — The  paying  teller  is  often  called  the 
"  first  teller."  His  duties  are  perhaps  more  exacting  than 
those  of  any  other  officer  of  the  bank.  He  is  generally 
the  custodian  of  its  cash,  and  is  personally  responsible  for 
the  same.  In  the  safe  or  vault  of  the  bank  certain  com- 
partments are  set  aside  for  his  exclusive  use,  to  which 
compartments  in  many  banks  there  is  an  outer  and  inner 
door,  the  combination  of  one  of  which  is  known  only  to 
him  and  the  combination  of  the  other  is  known  only  to 
some  other  officer,  usually  the  cashier.  In  these  compart- 
ments are  kept  the  greater  part  of  the  cash  belonging  to 
the  bank,  and  in  which  each  day,  after  the  close  of  busi- 
ness, and  the  balancing  and  proof  of  the  cash,  are  placed 
all  the  cash,  coin,  etc.,  which  have  been  received  during 
the  day  by  the  receiving  teller,  the  note  teller,  and  the 
collection  clerks,  all  of  whom  turn  over  to  him,  on  his 
receipt,  the  amounts  received  by  them,  as  also  does  the 
paying  teller,  the  cash  contents  of  his  till,  a  drawer  arranged 
into  numerous  spaces  for  the  convenient  holding  of  bills 
of  various  denominations. 

Each  morning  at  the  opening  of  business  for  the  day, 
the  paying  teller  takes  from  such  compartments  the 
amount  of  money  he  thinks  will  be  required  to  pay  the 
checks  presented  at  his  window,  and  later  the  amount 
necessary  to  settle  the  Clearing-House  balance,  should 
his  bank  be  debtor.  This  balance  in  normal  times  is  sent 


METHODS  OF  BUSINESS   OF  BANKS.  119 

in  cash  to  the  Clearing  House  by  trusted  employes; 
although,  as  has  been  before  stated,  in  times  of  great 
financial  stringency  the  Clearing  House  issues,  on  the 
deposit  of  satisfactory  collateral,  "  Clearing  House  Certifi- 
cates," which  are  receivable  by  it  in  payment  of  debtor 
balances,  and  must,  of  course,  to  be  of  any  real  use,  be 
also  accepted  by  creditor  banks  in  payment  of  debits  to 
them,  as  the  Clearing  House  has  no  other  money  than 
that  paid  in  by  the  debtor  banks.  With  this  amount  the 
paying  teller  is  credited. 

The  paying  teller's  desk  is  usually  a  model  in  the  way 
of  neatness  and  convenience  of  arrangement.  On  top  of 
it  to  the  left  are  the  trays  containing  coin,  piles  of  gold 
and  silver  of  various  denominations;  further  to.' the  left 
and  a  little  in  front  of  these  trays  are  stacks  of  bills  of 
different  denominations  done  up  in  packages,  each  of 
which  has  been  previously  counted  and  marked.  In  the 
till  proper,  which  is  a  drawer  underneath  the  desk,  the 
bills  of  unusual  denominations  are  assorted,  and  those 
needed  to  make  change  where  checks  are  drawn  for  odd 
or  broken  amounts.  The  bills  in  the  stacks  are  usually 
done  up  fifty  in  a  package,  hence  a  package  of  ones  would 
contain  $50,  of  twos  $100,  of  fives  $250,  of  tens  $500,  and 
of  twenties  $1000;  the  larger  bills  are  not  generally  put 
up  in  packages,  and  when  called  for,  the  teller  upon  tak- 
ing them  out  usually  puts  a  slip  in  the  compartment 
from  which  they  are  taken,  or  the  same  amount  in  pack- 
ages of  a  smaller  denomination,  which  being  in  packages 
while  the  other  bills  are  not,  are  readily  separable,  and 
answer  the  purpose  intended,  which  is  always  to  keep  the 
same  amount  in  each  section  of  the  till,  except  those 
used  for  making  change,  and  to  use  the  money  in  the 
stacks,  which  facilitates  counting  after  the  day's  work  is 
over. 

In  New  York  City,  promptly  at  ten  o'clock,  the  tellers' 
windows  are  opened  for  the  transaction  of  business,  and 


I2O         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

remain  open  until  three,  except  on  Saturday,  when  they 
are  closed  at  twelve. 

The  day's  business  now  begins.  Mr.  Smith  presents 
his  check  to  his  own  order  for  $500.  The  teller  examines 
the  same,  and  if  it  is  properly  endorsed,  Mr.  Smith 
being  a  well  known  depositor,  keeping  a  good  balance, 
the  check  is  paid,  the  teller  handing  Mr.  Smith  a  package 
previously  counted  and  known  to  contain  that  sum.  Mr. 
Smith  must  either  count  the  money  handed  him  before 
he  leaves  the  window,  or  accept  the  teller's  count.  Next 
comes  a  person  who  presents  Mr.  Brown's  check  for  say 
$5000  and  wants  it  certified.  Mr.  Brown  has  dealt  with 
the  bank  a  number  of  years,  and  his  account  is  known  to 
the  teller  to  be  generally  somewhere  in  the  neighborhood 
of  $6000,  but  of  late  his  balances  have  not  been  so  heavy  ; 
in  fact,  there  is  a  vague  suspicion  capable  of  instant  veri- 
fication that  Mr.  Brown's  account  would  only  show  about 
$4000  to  this  credit,  and  the  National  Banking  Act  under 
which  this  bank  is  organized  prescribes  severe  penalties, 
not  only  on  the  bank,  but  also  on  the  official,  for  the 
over-certification  of  checks.  To  certify  or  not  to  certify ! 
He  well  knows  that  a  refusal  to  certify  will  probably  be  a 
serious  injury  to  Mr.  Brown's  credit,  and  Mr.  Brown's 
dealings  have  always  been  honorable.  He  does  not  at- 
tempt to  verify  his  suspicion — uncertainty  in  his  case  is 
preferable  ;  he  certifies  the  check,  and  in  the  rush  of 
business  forgets  all  about  it,  and  probably  never  thinks 
of  it  again  unless  Mr.  Brown  should  fail  to  make  good  his 
account  ;  or  the  teller  will  say,  "  I  will  pay  you  the 
money."  The  teller  is  allowed  a  large  discretion  in  the 
matter  of  certification.  The  moment  a  check  is  certified, 
it  is  charged  against  the  maker.  The  memory  of  signa- 
tures and  faces  is  even  more  necessary  than  a  memory  of 
the  depositors'  credit  balances,  as  the  ledger  keepers  can 
always  furnish  the  latter,  while  no  one,  in  the  rush  of 
business,  but  the  teller  himself,  can  furnish  the  former, 


METHODS  OF  BUSINESS  OF  BANKS.  121 

although  it  is  true  he  may  refer  to  the  signature  book 
for  comparison. 

In  the  payment  of  checks,  four  considerations  should 
be  ever  present.  First,  is  the  person  presenting  the  same 
entitled  to  receive  the  money  for  which  it  calls,  and  unless 
he  is  known  to  the  teller  he  cannot  determine,  and  if  not 
known  he  must  be  identified  by  some  one  who  is  known. 
Many  tellers  require  the  person  identifying  another  to 
write  his  name  under  the  endorsement  of  the  person 
identified,  so  as  to  recall  the  name  of  the  person  by  whom 
such  identification  was  made.  The  Second  consideration 
is  whether  the  signature  is  genuine ;  the  Third  whether 
the  drawer's  account  is  good  for  the  amount  called  for, 
and  the  Fourth  whether  the  first  and  all  intermediate  en- 
dorsements on  the  check  are  correct. 

The  paying  teller  must  also,  as  much  as  is  within  his 
power,  examine  the  checks  returned  from  the  Clearing 
House  for  the  same  reasons  that  he  examines  those  pre- 
sented for  payment  at  his  window. 

When  the  day's  business  is  over,  the  paying  teller 
makes  up  a  balance  sheet,  on  one  side  of  which  is  the  total 
amount  paid  out,  and  the  amount  on  hand,  which  should, 
of  course,  equal  the  amount  of  cash  with  which  he  started 
business  that  day.  He  then  receives  from  the  other 
tellers  the  amounts  paid  in  to  them  during  the  day,  for 
which  he  receipts.  His  final  proof  is  then  made  up 
and  handed  to  the  cashier  or  assistant  cashier,  and 
the  money  is  locked  up  in  the  safes  or  vaults  as  before 
described. 

Receiving  Teller. — The  receiving  teller  (often  called 
the  second  teller),  as  his  title  implies,  receives  moneys  for 
deposit,  but  as  he  pays  out  none,  it  is  not  necessary  that 
he  should  have  the  same  knowledge  of  accounts  as  the 
paying  teller.  It  is  necessary,  however,  that  he  should 
have  a  thorough  familiarity  with  counterfeit  money,  as  it 
is  to  his  window  the  same  generally  comes.  There  are 


122         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

several  magazines  published  which  give  lists  and  descrip- 
tions of  all  counterfeits,  with  which  lists  the  receiving 
teller  is  supposed  to  be  familiar. 

Each  morning  he  starts  with  an  empty  till,  and  each 
afternoon  when  the  day's  business  is  done  turns  over  the 
cash  and  checks  deposited  with  him  to  the  paying  teller 
and  receives  his  receipt  therefor.  He  retains  the  deposit 
slips  accompanying  each  deposit,  and  marks  and  files  the 
same  for  future  reference.  He  should  require  depositors 
to  endorse  every  check  deposited,  whether  to  order 
or  bearer,  so  that  should  any  check  be  returned  for 
want  of  funds  or  any  other  reason,  he  may  by  looking  at 
the  endorsement  know  who  deposited  it. 

Discount  Department. — As  discounts  constitute  the 
principal  business  and  source  of  income  of  all  banks  of 
deposit,  this  department  is  the  most  important  in  the 
bank,  and  is  usually  under  the  charge  of  its  principal 
officer  or  officers.  It  is  conducted  in  much  the  same  way 
as  the  credit  department  of  any  large  mercantile  house, 
except  that  a  well  managed  bank,  on  account  of  its  dis- 
counts being  generally  larger  in  amount,  should  make 
more  careful  inquiry  as  to  the  financial  condition  of  the 
borrower  than  is  necessary  for  a  business  house  to  do  in 
regard  to  the  persons  to  whom  it  extends  credit. 

The  reports  of  the  principal  commercial  agencies  are 
always  on  hand  and  almost  hourly  referred  to  ;  but  these 
printed  reports  are  seldom  taken  as  conclusive.  In  a  case 
where  there  is  any  doubt,  later  reports  are  asked  for  from 
the  office  of  the  agency  and  generally  promptly  supplied, 
beside  which  the  banks  make  personal  inquiry  of  the 
intending  borrower  and  of  each  other  as  to  the  amount 
of  paper  which  the  borrower  has  in  the  market,  etc.,  and 
often  require  a  statement  of  his  exact  financial  condition, 
and  any  misrepresentation  on  his  part  renders  him  liable 
to  criminal  prosecution. 

Naturally,  the  persons  or  firms  who  take  up  their  paper 


METHODS  OF  BUSINESS  OF  BANKS.  123 

promptly  become  favorably  known,  and  can  get  their 
paper  discounted  at  the  lowest  market  rates. 

Nearly  all  the  large  firms  and  persons  actually  engaged 
in  business  have  at  times  a  large  amount  of  paper  out, 
and  some  business  men  assert  that- in  order  to  secure  loans 
either  at  all  or  at  the  lowest  rate  of  discount,  it  is  neces- 
sary to  keep  their  paper  on  the  market,  as  offering  it  to 
banks  is  termed.  Some  even  go  so  far  as  to  assert  the 
necessity  of  issuing  such  paper  for  this  purpose,  even  if 
they  do  not  need  the  money  and  keep  it  lying  idle  in 
bank. 

Discount  Clerk. — In  all  the  larger  banks  the  clerk  who 
has  charge  of  the  discounts,  i.  e.,  the  paper  purchased  by 
the  bank,  is  called  the  Discount  Clerk.  Perhaps  it  would 
be  well  here  to  explain  why  these  are  called  discounts. 
The  reason  is  the  paper  is  sold  to  the  bank,  which  becomes 
the  owner  thereof,  paying  to  the  seller  the  amount  of  the 
face  of  the  paper  less  the  interest  on  the  amount  actually 
paid,  which  is  deducted  therefrom  and  termed  a  discount. 
On  the  acceptance  of  a  discount  the  amount  of  interest 
to  be  deducted  is  at  once  taken  therefrom  and  the  balance 
paid  to  the  seller  of  the  paper. 

In  the  discounting  of  paper,  interest  is  first  charged  on 
the  face  amount  of  the  paper  and  then  credited  at  the 
same  rate  on  the  amount  of  the  discount,  as  the  discount 
not  being  paid  over  to  the  seller  of  the  paper,  and  he  in 
the  first  instance  being  charged  interest  on  the  whole 
amount  should  be  credited  with  interest  on  that  amount 
which  he  does  not  receive.  To  illustrate,  A  presents  his 
paper  for  $10,000,  having  one  year  to  run.  B  agrees  to 
discount  it  at  six  per  cent.  The  discount  on  $10,000  at  six 
per  cent,  for  one  year  would  be  $600,  so  that  A  would  be 
actually  receiving  but  $9400  while  paying  interest  on 
$10,000.  A  therefore  should  be  credited  with  the  interest 
on  the  sum  of  $600  which  he  does  not  receive.  The 
computation  would  then  stand  as  follows : 


124         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

Loan  $10,000,  less  6  per  cent,  discount $9400 

Plus  6  per  cent,  interest  on  amount  not  paid,  $600 36 

$9436 

which  would  be  the  sum  payable  to  A. 

All  paper  offered  to  a  bank  for  discount  is  first  handed 
to  the  discount  clerk,  by  whom  it  is  entered  in  a  book 
called  the  "  Offering  Book,"  which,  in  addition  to  setting 
forth  the  particulars  of  the  paper  offered,  often  also  states 
the  amount  of  paper  already  purchased  from  the  person 
offering  the  same. 

After  the  paper  has  been  accepted  it  is  entered  in  the 
"  Dealers'  Discount  Book,"  which  is  so  ruled  as  to  provide 
columns  in  which  to  enter  the  names  of  the  maker,  the 
endorser,  place  of  payment,  due  date,  days  to  run,  dis- 
count, amount  of  exchange,  and  net  proceeds.  Postings 
to  the  ledger  are  made  direct  from  this  book.  The  dis- 
count clerk  also  enters  paper  discounted  in  books  called 
"  Ticklers."  Some  banks  have  domestic  ticklers,  in  which 
are  entered  domestic  discounts,  and  foreign  ticklers, 
foreign  discounts.  The  tickler  is  a  book  used  to  tickle  or 
refresh  the  memory,  from  which  it  probably  derives  its 
name.  The  total  footings  of  the  ticklers  should  agree 
with  the  total  of  bills  discounted. 

As  both  the  names  of  the  drawer  and  the  endorser  of 
each  piece  of  paper  offered  for  discount  is  set  forth  not 
only  in  the  Offering  Book,  but  also  in  the  Ticklers,  by 
reference  to  these  books,  should  it  be  suspected  that  two 
persons  or  firms  are  exchanging  paper  or  endorsing  for 
each  other,  that  fact  could  be  ascertained. 

In  some  banks,  paper  offered  for  discount  and  accepted 
is  numbered  in  red  ink  and  filed  in  packages.  Other 
banks,  however,  will  permit  no  writing  of  any  description 
or  even  the  puncturing  of  the  paper  by  a  pin. 

It  is  considered  unwise  to  make  paper  payable  to  the 
order  of  the  bank,  but  rather,  and  the  general  practice 
among  business  men  is,  to  make  it  payable  to  their  own 
order,  and  then  endorse  it. 


METHODS  OF  BUSINESS  OF  BANKS.  125 

The  discount  clerk  is  the  custodian  of  and  has  in  his 
possession  the  major  part  of  bills  receivable,  and  each 
night  he  deposits  the  same  in  the  compartment  of  the 
vault  or  safe  set  apart  for  that  purpose.  Each  morning 
they  are  taken  out  by  himself.  Should  an  officer  desire 
to  inspect  a  note,  the  discount  clerk  is  called  upon  to  pro- 
duce it,  and  the  same  is  inspected  in  his  presence,  he 
being  responsible  for  the  safe-keeping  of  such  paper. 

As  paper  for  discount  is  handed  him  in  the  first  instance, 
and  after  being  entered  in  the  Offering  Book  is  presented 
to  the  officer  or  officers  to  decide  whether  it  will  be  ac- 
cepted or  not,  and  when  a  decision  has  been  reached,  is 
returned  to  him,  if  accepted  marked  "  A,"  to  be  entered 
in  the  proper  books,  and  if  rejected  marked  "  R,"  to  be 
returned  to  the  persons  offering  the  same  for  discount, 
naturally  persons  come  into  frequent  contact  with  the 
discount  clerk,  in  order  to  receive  information  as  to  what 
disposition  has  been  made  of  their  offerings. 

It  is  also  the  duty  of  the  discount  clerk  to  send  paper 
falling  due  outside  of  the  city  in  which  his  bank  is  located, 
to  the  bank's  correspondent  in  the  city  where  the  same  is 
payable.  This  paper  is^usually  sent  for  collection,  as  few 
New  York  banks  keep  accounts  in  foreign  banks  (by 
foreign  banks  are  meant  any  banks  outside  the  city  of 
New  York) ;  although  it  does  occasionally  happen  that 
New  York  banks  at  times  re-discount  their  paper  with 
other  banks,  but  more  frequently  the  foreign  banks  re- 
discount in  the  New  York  banks,  or  deposit  their  paper  as 
collateral  for  loans.  Discounted  paper  sent  to  corre- 
spondents for  collection  is  usually  transmitted  through  the 
mail,  and  when  information  of  its  payment  is  received,  the 
collecting  bank,  if  it  does  not  remit  therefor,  is  debited 
with  the  same  and  "  Bills  Discounted  "  credited.  If  it 
does  remit  "Cash"  is  debited  and  "  Bills  Discounted" 
credited.  It  is  desirable  that  such  paper  should  be  sent 
to  the  correspondent  from  a  fortnight  to  ten  days  before 
maturity. 


126         PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

Note  Teller.— In  the  larger  banks  where  there  is  a  special 
teller  who  attends  to  the  collection  and  payment  of  notes, 
he  is  known  as  the  note  teller,  sometimes  called  the  third 
teller.  He  receives  checks  certified  or  uncertified  or  cash 
in  payment  of  notes,  of  which  there  are  two  kinds  :  first, 
the  notes  which  have  been  discounted  by  the  bank  and 
the  payments  for  which  become  a  part  of  the  funds  of  the 
bank,  the  bank  having  already  purchased  the  same ;  and, 
second,  notes  deposited  for  collection,  the  payments  for 
which  are  credited  to  the  depositors  of  the  same.  Should 
any  notes  either  for  collection  or  discount  not  be  paid 
when  presented,  the  teller  hands  the  same  over  to  the 
notary  of  the  bank  for  presentation  to  and  demand  on 
the  maker,  when,  if  not  paid,  they  are  protested.  Such 
presentation  and  protest  are  necessary  in  order  to  hold  the 
endorsers.  It  is  of  the  utmost  importance  that  the  note 
teller  should  make  no  mistake  in  the  date  of  presentation 
of  a  note  to  the  drawer,  at  the  place  where  the  note  is 
made  payable,  because,  should  a  note  be  presented  a  day 
after  its  maturity  and  the  drawer  decline  or  be  unable  to 
pay  the  same,  the  endorsers  cannot  be  compelled  to 
pay  it. 

Book-keeper.  "  The  book-keeper  "  is  used  in  contradis- 
tinction to  the  ledger  keepers,  who  are  also  book-keepers. 
He  is  the  person  directly  responsible  for  the  general  books 
of  the  bank,  and  the  other  book-keepers  and  ledger 
keepers  are  immediately  under  his  control. 

In  no  business  is  it  so  necessary  as  in  banking  that  the 
books  should  be  kept  written  up  to  date,  especially  the 
depositors'  accounts,  else  errors  may  and  probably  will 
occur  which  would  do  great  damage  to  the  bank.  All 
accounts  should  be  posted  to  date  so  that  the  exact  con- 
dition of  each  account  can  be  ascertained  at  the  beginning 
of  each  day's  business.  It  is  the  rule  in  most  banks  to 
have  checks  entered  up  in  the  Customers'  Ledger  imme- 
diately after  payment  or  certification,  and  before  the 


METHODS  OF  BUSINESS  OF  BANKS.  1 27 

clerks  leave  the  bank  for  the  day  to  enter  up  to  their  re- 
spective accounts  all  deposits.  Should  any  check  forming 
part  of  a  deposit  be  returned  unpaid  the  person  deposit- 
ing the  same  is  debited  therewith.  Most  banks  make  it 
a  rule  that  their  depositors  shall  not  draw  against  that 
portion  of  their  deposit  consisting  of  checks  the  day  of 
deposit. 

The  teller  and  collection  and  discount  clerks  have 
books  which  are  kept  exclusively  by  them  and  are  only 
referred  to  by  the  book-keeper  to  post  or  prove  his  books, 
which  are  not  books  of  original  entry. 

The  pass-books  are  written  up  by  the  ledger  keepers. 

The  books  should  be  so  kept  that  a  complete  statement 
of  the  bank's  condition  could  be  furnished  within  a  day, 
and  all  accounts  which  would  influence  the  Board  of  Di- 
rectors or  other  officers  in  the  making  or  rejecting  of  dis- 
counts or  loans  should  be  written  up  to  date. 

While  the  ruling  of  some  books  in  the  various  banks 
may  differ  in  a  minor  degree,  practically  the  same  system 
prevails  in  all  large  banks.  In  the  smaller  banks  and  the 
country  banks  fewer  books  are  required  and  used  than  in 
the  larger,  one  book  in  many  instances  answering  in  the 
place  of  two  and  sometimes  three. 

In  order  to  keep  the  books  properly  written  up  it  is 
necessary  that  the  book-keeper  should  have  a  sufficient 
number  of  assistants,  and  that  each  man  should  do  the 
work  assigned  him  systematically  and  accurately. 

Runners. — Runners,  usually  young  men,  are  employed 
to  present  notes,  drafts,  and  other  promises  to  pay  ;  notes 
are  presented  to  the  makers  ;  if  they  are  not  .in,  a  notice  is 
left,  a  printed  slip  with  which  the  runner  is  provided,  stat- 
ing that  the  bank  holds  such  and  such  a  note  payable  to 

the  order  of for  the  amount  for  which  it  was  drawn, 

and  giving  the  last  day  when  payment  for  the  same  will 
be  received.  Drafts,  of  course,  are  presented  to  the  per- 
son on  whom  drawn,  if  on  sight  for  payment,  and  if  time 


128         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

drafts  for  acceptance.  In  case  of  the  absence  of  the  per- 
son on  whom  they  are  drawn  a  like  notice  is  left. 

In  regard  to  notes  presented  on  the  last  day  of  payment 
it  is  important  that  the  runner  should  report  promptly  to 
the  note  teller  a  failure  to  collect,  so  that  the  paper  may 
be  placed  in  the  hands  of  the  notary  to  make  the  necessary 
presentation,  and,  in  the  event  of  non-payment,  protest 
and  notice  to  the  endorsers.  Generally  notice  is  given 
the  maker  several  days  before  maturity,  after  which  notice 
the  maker  is  expected  to  call  at  the  bank  and  pay  the 
same  by  the  morning  of  maturity  ;  if  he  does  not  do 
so  the  bank  again  presents  the  note.  (For  presentation, 
protest,  and  notice  to  endorsers  see  "  Notary.") 

The  bank  is  in  charge  of  the  porter  from  the  time  the 
watchman  who  has  care  of  the  bank  at  night  leaves  in 
the  morning  till  the  clerks  arrive  and  the  books  are  put  in 
their  proper  places,  and  again  from  the  time  the  clerks 
leave  till  the  watchman  comes  on  duty. 

How  to  Open  a  Bank  Account. — The  first  thing  is 
to  have  the  necessary  amount  of  money  with  which  to 
open  it.  Many  of  the  New  York  banks  of  deposit  refuse 
to  receive  accounts  averaging  less  than  a  thousand  dollars, 
and  there  is  one  well-known  bank  in  New  York  which  will 
not  receive  an  account  which  averages  less  than  twenty- 
five  thousand  dollars. 

The  next  thing  to  do  is  to  secure  an  introduction  to  the 
cashier,  preferably  by  a  depositor  of  the  bank.  You  are 
then  questioned  as  to  the  amount  of  balance  you  intend 
to  keep  on  hand,  and  what  accommodation  you  expect 
from  the  bank. 

As  the  various  banks  have  different  rules  in  regard  to 
the  amount  of  deposit  which,  as  they  term  it,  "  entitles 
a  depositor  to  accommodation,"  none  can  be  here  stated. 
The  larger  and  more  prosperous  a  bank,  the  less  anxious 
it  is  generally  to  secure  new  accounts,  and  the  more  inde- 
pendent in  the  matter  of  accommodation,  so  that  it  is  not 


METHODS   OF  BUSINESS  OF  BANKS.  129 

always  best  to  keep  your  account  in  a  large  bank,  if  that 
account  is  a  comparatively  small  one,  and  it  is  probable 
that  accommodation  will  be  needed. 

The  preliminaries  being  satisfactorily  arranged,  you  are 
introduced  to  the  receiving  teller,  who  receives  your  de- 
posit and  gives  you  credit  for  the  same  in  a  book,  which 
is  handed  you,  termed  the  "  pass  book,"  on  one  side  of 
which  are  credited  the  amounts  deposited,  and  on  the  other, 
when  your  book  is  sent  in  to  be  written  up,  /.  *?.,  balanced 
with  the  bank's  books,  is  debited  with  the  checks  drawn 
by  you  against  those  credits. 

You  are  next  introduced  to  the  paying  teller,  and  re- 
quested to  write  your  signature  in  a  book  kept  for  that 
purpose  in  the  bank  and  called  the  "  Signature  Book,"  and 
you  are  given  a  check  book.  The  cashier,  if  you  are  of 
sufficient  importance,  accompanies  you  to  the  door  and 
you  are  politely  bowed  out,  and  you  have  opened  your 
bank  account,  and  your  hard-earned  wealth  is  in  the  pos- 
session of  a  soulless  corporation  which  knows  no  favor,  or 
should  know  none. 

Bank,  pass  books  should  be  handed  in,  at  least  once  a 
month,  to  the  proper  ledger  keeper,  to  be  written  up,  and, 
on  the  return  of  your  checks  and  book,  the  checks  and 
entries  in  the  pass  book  ought  to  be  carefully  compared 
with  the  stubs  in  the  check  book,  and,  if  the  account  is 
found  correct,  the  checks  should  be  done  up  in  a  package 
and  marked  checks  on  the  bank  on  which  they  are  drawn, 

from to and  put  away  in  a  safe  place,  as 

generally  an  endorsed  check  is  the  best  obtainable  evi- 
dence of  a  payment. 

If  any  discrepancy  is  found  to  exist  between  the  bank's 
balance  and  the  balance  the  depositor  thinks  is  due  him, 
the  bank  should  be  immediately  notified  and  the  pass  book 
taken  back  for  comparison. 

Course  of  a  Deposit. — As  deposits  are  divided  into 
two  kinds,  checks  and  currency,  we  will  have  to  con- 


130         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

sider  the  same  separately,  as  they  do  not  follow  the  same 
course. 

First :  In  regard  to  currency,  the  amount  of  which 
must  be  stated  on  the  deposit  slip  of  the  depositor,  who  is 
provided  therewith  by  the  bank.  This  currency  is  paid  in 
at  the  window  of  the  receiving  teller  and  by  him  credited, 
together  with  the  rest  of  the  deposit,  to  the  person  mak- 
ing the  same,  first  on  the  pass  book,  then  on  the  teller's 
book,  and  finally  by  the  ledger  keeper  on  the  ledger,  and 
is  placed  in  the  receiving  teller's  till,  mixed  with  the  funds 
of  the  bank,  of  which  it  becomes  a  part,  and  its  identity  is 
lost. 

As  to  checks.  First  we  will  consider  those  which  are 
drawn  upon  the  bank  in  which  the  depositor  has  his  ac- 
count. These  checks,  as  in  the  case  of  currency,  are  set 
out  on  the  deposit  slips  and  are  handed  to  the  receiving 
teller,  who  credits  the  depositor  with  the  amount  thereof 
as  before  described.  The  total  amount  of  the  deposit  of 
which  such  checks  form  a  part  is  placed  in  the  depositor's 
account  to  his  credit.  The  checks  are  passed  to  the  ledger 
keeper  in  charge  of  the  ledger  in  which  the  drawers'  ac- 
counts are  kept  and  are  there  debited  to  said  accounts. 
At  the  end  of  a  given  period,  as  above  stated,  they  are  re- 
turned to  the  drawers  when  their  pass  books  are  balanced. 

In  regard  to  checks  drawn  on  other  banks,  the  credit  is 
made  to  the  depositor  depositing  the  same,  in  the  manner 
above  described,  but  the  checks,  instead  of  going  through 
the  books  of  the  bank,  are  assorted  by  the  assistant  teller 
and  placed  in  numbered  boxes,  the  numbers  of  which  cor- 
respond to  the  numbers  assigned  said  banks  at  the  Clearing 
House. 

After  the  close  of  business  hours  the  checks  on  each 
bank  are  done  up  in  a  separate  package  and  the  total 
amount,  together  with  the  bank's  name,  is  written  there- 
on. The  total  amount  of  checks  on  all  the  Clearing-House 
banks,  or  those  clearing  through  them,  are  then  stated  on 


METHODS   OF  BUSINESS  OF  BANKS.  131 

the  Clearing-House  sheet,  which  can,  of  course,  only  show 
their  debits,  as  their  holdings  against  this  bank  are  not 
yet  known.  The  next  morning  at  ten  o'clock  the  clear- 
ing clerks  of  the  various  banks  meet  at  the  Clearing 
House,  and  after  presenting  their  bank's  Clearing-House 
sheet  to  the  Clearing  House,  exchange  the  checks  of  their 
respective  banks,  as  is  described  in  the  article  on  the 
Clearing  House. 

The  clerk  of  the  Clearing  House  then  gives  to  the 
clerk  of  each  bank  a  statement,  showing  the  net  total 
either  due  to  or  owing  by  his  bank  from  all  the  other 
banks.  In  case  the  bank  is  a  debtor  this  amount  has  to  be 
paid  in  by  one  o'clock ;  and  in  case  it  is  a  creditor  the 
amount  due  is  paid  over  to  it  by  two  oclock. 

The  clerks  after  this  exchange  of  checks  return  to  their 
respective  banks  and  the  different  checks  are  charged  up 
to  the  various  drawers  thereof,  and  finally  returned  to 
them  as  before  explained. 


CHAPTER  V. 

New  York  Clearing  House. 

LOCATED  at  present  in  the  modest  four-story  brown- 
stone  building,  at  the  corner  of  Pine  and  Nassau  Streets, 
is  the  "  New  York  Clearing  House  Association,"  formed 
by  the  principal  banks  of  this  city,  for  the  purpose  of 
effecting  clearances  or  exchanges  of  checks,  drafts,  etc., 
between  each  other.  The  association  is  now  erecting  a 
new  home  on  Cedar  Street. 

This  association  was  formed  in  1853  with  a  membership 
of  fifty-five  banks,  whose  capital  aggregated  $47,000,000. 
Its  present  membership  consists  of  sixty-six  banks  with  an 
aggregate  capital  of  $62,622,700  and  a  surplus  of  $71,046,- 
800.  While  this  increase  has  not  been  as  rapid  as  might 
have  been  supposed  and  perhaps  as  has  taken  place  in 
some  other  directions,  it  should  be  borne  in  mind  that  the 
strength  of  a  bank  or  a  banking  institution  does  not 
entirely  rest  upon  the  amount  of  its  capital  nor  even  of  its 
surplus,  and  when  it  is  considered  that  this  association 
was  organized  by  the  fifty-five  strongest  banks  in  the  city, 
and  it  is  remembered  that  these  banks,  with  but  few  excep- 
tions, still  retain  that  leading  position,  and  that  only 
institutions  of  the  very  highest  character  are  admitted  to 
membership,  the  wisdom  and  conservatism  displayed  in 
thus  restricting  the  membership  will  be  appreciated.  It 
may  be  said  that  in  addition  to  the  Federal  supervision  in 
the  case  of  national  banks,  and  the  State  supervision  in 


NEW    YORK  CLEARING  HOUSE.  133 

the  case  of  State  banks  and  trust  companies,  all  members 
of  this  association  are  subject  to  the  almost  daily  super- 
vision of  committees  appointed  by,  or  officers  of,  the 
Clearing  House. 

The  conditions  of  membership  are  the  payment  of  an 
initiation  fee  ranging  from  $5000  for  banks  of  a  capital 
of  half  a  million  to  $7500  for  banks  with  a  capital  of  five 
millions.  Further,  each  member  irrespective  of  capital 
pays  yearly  $200,  besides  which  there  is  a  charge  varying 
from  35  to  40  cents  on  each  million  dollars  cleared. 

In  addition  to  the  examination  spoken  of,  each  member 
must  file  weekly  a  statement  of  loans,  specie,  legal-tender 
circulation,  deposits,  etc. 

The  officers  and  committees  of  the  Clearing  House 
Association  are  chosen  from  the  banks  by  which  it  is 
formed.  The  Assistant  Treasurer  of  the  United  States, 
owing  to  the  importance  of  the  clearings  of  the  Sub- 
Treasury,  is  a  member  by  courtesy,  as  is  said  by  way  of 
being  polite,  but  largely  for  the  convenience  of  the  banks 
and  to  avoid  individual  presentation  of  claims  against  the 
Sub-Treasury. 

This  association  is  designed  to  provide  a  place  and 
method  by  which  the  risk,  expense,  and  loss  of  time 
necessary  in  the  presentation  of  the  demands  of  one  bank 
against  each  of  the  other  banks,  members  of  this  associa- 
tion, and  of  the  claims  of  each  of  those  other  banks  in 
turn  against  it  and  against  each  other,  may  be  avoided. 
The  method  by  which  this  is  accomplished  in  brief  is  by 
the  presentation  by  a  bank  of  its  entire  demands  on  all 
other  banks  to  the  Clearing  House,  with  which  the  bank 
is  credited.  The  Clearing  House  receives  from  all  other 
banks,  members,  the  claims  against  said  bank,  and  if  the 
claims  of  said  bank  are  in  excess  of  the  claims  against  it, 
then  the  Clearing  House  pays  to  it  such  excess  ;  in  case 
the  demands  against  such  bank  are  in  excess  of  its  claims 
against  other  banks,  then  the  bank  must  pay  the  excess 


134         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

to  the  Clearing  House,  the  Clearing  House  distributing 
such  excess  among  the  banks  to  which  it  may  be  due. 

In  England,  as  early  as  the  latter  part  of  the  eighteenth 
century,  the  necessity  of  such  institutions  was  recognized, 
and  in  fact  in  several  of  the  cities  of  England  clearing 
house  associations  were  then  established. 

The  great  utility  of  such  an  institution  need  only  be 
mentioned  to  commend  itself  immediately  to  any  one 
acquainted  with  finance,  but  perhaps  an  illustration  would 
not  be  amiss.  Not  long  since  one  of  the  larger  members 
of  this  association  presented  to  it  demands  against  the 
other  members  of  the  association  amounting  to  about 
$4,000,000,  and  these  other  members  presented  to  the 
association  demands  against  it  only  fifty  cents  short  of  the 
amount  of  its  claims  against  them.  Only  the  balance 
between  these  two  amounts  was  paid  over,  the  two 
principal  amounts  being  set  off  against  each  other ;  a 
transaction  of  $8,000,000  was  thus  accomplished  by  the 
set  off  of  credit  against  debit  and  the  payment  of  the 
balance  of  fifty  cents. 

The  machinery  by  which  these  exchanges  or  clearances 
are  accomplished  is  as  follows :  The  manager  and  his 
staff  are  in  their  respective  positions  on  the  platform  at 
IO  A.M.  This  platform  is  situated  at  the  western  end  of 
the  large  room  on  the  third  floor,  in  which  room  are  as- 
sembled at  the  respective  desks  allotted  to  them  the 
"  delivery  and  "  settling  cferks  "  of  the  various  members 
of  the  association.  Each  delivery  clerk  brings  the  de- 
mands held  by  his  bank  against  the  other  members,  done 
up  in  separate  parcels,  this  work  having  been  accom- 
plished the  day  before  by  the  assistant  tellers  in  his  bank. 
The  settling  clerks  now  present  to  the  manager  of  the 
association  a  memorandum  giving  the  amount  of  the 
total  demands  against  the  other  members,  with  which 
amounts  the  bank  represented  by  said  settling  clerk  is 
credited  on  a  proof  sheet  kept  by  the  "  Proof  Clerk." 


NEW    YORK  CLEARING  HOUSE.  135 

The  clerks  now  go  to  the  respective  desks  allotted  to 
their  banks  on  one  of  the  three  rows  of  desks  located  in 
this  room,  and  the  actual  clearances  begin  as  follows : 
The  delivery  clerk  at  desk  No.  I  delivers  to  the  settling 
clerk  of  No.  2  all  demands  of  No.  I  against  No.  2,  obtain- 
ing a  receipt  therefor.  At  the  same  time  No.  2*s  delivery 
clerk  has  delivered  to  No.  3's  settling  clerk  the  demands 
of  No.  2  against  No.  3,  upon  his  receipt.  This  mode  of 
settling  prevails  throughout  the  room  until  each  member 
has  presented  his  demands  against  every  other  bank  and 
every  other  member's  demands  have  been  presented 
against  it,  which  usually  consumes  about  twenty  minutes. 
After  these  settlements  have  been  effected  the  settling 
clerks  send  the  result  of  the  demands  against  their  re- 
spective banks  on  slips  to  the  proof  clerk  by  whom 
they  are  entered  to  the  debit  of  such  bank.  The  proof 
clerk  now  adds  up  the  total  debits  and  credits,  which 
should,  of  course,  agree,  because  what  is  a  credit  of  one 
member  is  a  debit  of  another,  and  vice  versa.  In  half  an 
hour  more  the  differences  between  member  and  member 
are  announced.  Those  members  whose  credits  are  in  ex- 
cess of  their  debits  are  termed  creditor  banks  and  those 
whose  debits  are  in  excess  of  the  credits  are  termed  debtor 
banks.  The  creditor  banks  collect,  as  soon  as  practicable, 
after  the  settlement  of  the  debtor  banks,  the  amounts  due 
them,  which  amounts,  of  course,  have  to  be  paid  in  by 
the  debtor  banks,  and  which  amounts  these  debtor  banks 
are  required  to  pay  in  cash,  not  later  than  half-past  one. 

To  give  an  accurate  idea  of  the  importance  of  this 
Clearing-House  Association,  it  may  be  interesting  to  note 
that  while  the  clearings  of  the  New  York  Clearing  House 
for  the  year  ending  December  31,  1894,  amounted  to 
$24,387,807,019.92,  although  for  the  last  ten  years  the 
average  annual  clearances  have  been  $35,000,000,000,  those 
of  all  the  other  clearing  houses  outside  of  New  York 
amounted  to  less  than  $21,000,000,000.  It  is  estimated 


136         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

that  the  clearings  of  the  London  Clearing  House,  the  next 
most  important  to  the  New  York  Clearing  House,  amount 
annually  to  about  $20,000,000,000. 

But  not  only  has  the  Clearing  House  been  useful  in  the 
discharge  of  its  ordinary  business  of  effecting  clearances, 
but  on  account  of  the  respect  and  confidence  in  its 
methods  and  management,  inspired  by  its  conservatism, 
it  has  been  able  at  least  three  times  within  the  last  twenty 
years  to  come  to  the  aid  of  the  banks,  and  incidentally  to 
that  of  the  public,  and  to  either  avert  or  greatly  amelio- 
rate the  severity  of  a  money  panic  by  the  issuance  of 
certificates  against  collateral  acceptable  to  a  committee 
appointed  by  it.  These  certificates  were  issued  to  the 
extent  of  75  Per  cent,  of  the  usual  market  values  of  the 
securities  held  by  such  committee  as  collateral  to  their 
issue,  and  were  used  in  the  settlement  of  the  daily  bal- 
ances between  its  members,  and,  of  course,  released  just 
that  amount  of  money  into  circulation  and  to  that  extent 
relieved  the  stringency  of  the  money  market.  Such  cer- 
tificates were  issued  in  1890  to  the  extent  of  $15,000,000, 
about  the  time  of  the  embarrassment  of  the  Barings, 
when  the  money  markets  of  the  whole  world  were  more 
or  less  convulsed.  The  denominations  of  these  certificates 
were  five,  ten,  and  twenty  thousand  dollars.  They  were 
all  taken  up  within  five  months  after  their  issue.  Another 
issue  of  certificates  to  the  amount  of  $41,000,000  was 
made  on  June  15,  1893,  which  was  all  retired  by  Novem- 
ber 1st  of  the  same  year.  The  following  is  a  copy  of  one 
of  these  certificates  : 


NEW    YORK  CLEARING  HOUSE. 


137 


£     W 

I   I 

'-M        O 


<u      ^ 

•£    •§ 

oj 

°  6 


No, 


$5000. 


LOAN  COMMITTEE    OF    THE  NEW  YORK 
CLEARING-HOUSE  ASSOCIATION. 


New  York, 


This  certifies  that  the  ............  has  deposited 

with  this  committee  securities  in  accordance  with 
the  proceedings  of  a  meeting  of  the  Association, 
held  November  nth,  1890,  upon  which  this  certifi- 
cate is  issued.  This  certificate  will  be  received  in 
payment  of  balances  at  the  Clearing  House  for  the 
sum  of  Five  Thousand  Dollars,  from  any  member 
of  the  Clearing-House  Association. 


On  the  surrender  of  this  certificate 
by  the  depositing  bank  above 
named,  the  committee  will  endorse 
the  amount  as  a  payment  on  the 
obligation  of  said  bank  held  by 
them,  and  will  surrender  a  propor- 
tionate share  of  the  collateral  se- 
curities held  therefor. 

$5000. 


The  government  of  this  institution  is  entrusted  to  its 
principal  committee,  the  Clearing-House  Committee, 
which  is  composed  of  members  elected  by  the  various 
banks  of  the  association.  This  committee  has  the  exe- 
cutive management  of  all  matters  pertaining  to  the  asso- 
ciation. The  next  most  important  committees  are  the 
Arbitration,  the  Conference,  and  the  Admission  Commit- 
tees. The  executive  management  of  the  Clearing  House 
is  in  charge  of  Mr.  William  Sherer,  the  present  able 
manager,  and  a  staff  of  assistants. 


CHAPTER   VI. 

Savings  Banks. 

SAVINGS  banks,  so  named  from  the  fact  that  they  are 
designed  to  be  the  depository  of  savings,  rather  than  of 
general  accounts  subject  to  immediate  check. 

These  banks,  with  the  exception  of  those  in  the  District 
of  Columbia  (which  are  necessarily  organized  under  the 
Federal  Laws),  are  organized  and  exist  under  the  laws  of 
the  States  in  which  they  are  located. 

As  these  banks  are  the  custodians  of  the  surplus  earn- 
ings above  the  immediate  necessities  of  their  depositors 
and  often  represent  their  entire  available  assets,  the  laws 
of  this  State,  in  particular,  have  thrown  around  them 
numerous  safeguards,  not  only  for  the  protection  of  the 
depositors,  but  of  the  institutions  themselves. 

The  law  is  so  exhaustive  in  its  treatment  of  the  class 
and  kind  of  security  on  which  savings  banks  may  make 
loans  or  invest  their  moneys,  that  it  is  impossible  to  give 
more  than  a  brief  resume. 

In  the  matter  of  the  regulations  under  which  moneys 
are  received,  interest  paid  or  credited  to  the  depositors' 
accounts,  loans  effected,  etc.,  the  constitution  and  by-laws 
of  the  institution  often  govern  in  the  practicable  workings, 
but  the  constitution  and  by-laws  are  always  subject  to  the 
rules  laid  down  in  the  statute  law. 

Article  III.  of  the  Banking  Laws  of  the  State  of  New 
York  pertains  to  savings  banks  and  prescribes  (Section 
100)  that  thirteen  or  more  persons,  two  thirds  of  whom 

138 


SAVINGS  BANKS.  139 

shall  be  residents  of  the  county  where  the  proposed  bank 
shall  be  located,  may  become  a  savings  bank  by  execut- 
ing a  certificate  in  duplicate,  one  copy  of  which  shall  be 
filed  in  the  office  of  the  Clerk  of  such  County,  and  the 
other  in  the  office  of  the  Superintendent  of  Banks  within 
sixty  days  after  its  acknowledgment,  setting  forth  : 

1.  The  name  by  which  the  corporation  shall  be  known. 

2.  The   place  where   its  business  is  to  be  transacted, 
designating  the  particular  city,  village,  or  town,  and  if  in  a 
city,  the  ward  therein. 

3.  The  name,  residence,  and,  if  in  a  city,  the  street  and 
number,  occupation  and  post-office  address  of  each  mem- 
ber of  the  corporation. 

4.  A  declaration  that  each  member  of  the  corporation 
will  accept  the  responsibilities  and  faithfully  discharge  the 
duties  of  a  trustee  in  such  corporation  when  authorized 
according  to  the  provisions  of  law. 

It  is  necessary  that  a  notice  of  intention  to  organize 
shall  be  published  at  least  once  a  week  for  four  weeks 
previous  to  filing  such  certificate  in  at  least  one  news- 
paper of  the  largest  circulation  published  in  the  city, 
village,  or  town  in  which  such  bank  is  proposed  to  be 
located,  or  if  no  newspaper  is  published  therein,  then 
some  newspaper  published  in  the  county,  or  if  none  is 
published  in  the  county,  then  in  a  newspaper  published 
in  the  adjoining  county. 

This  notice  shall  specify  the  names  of  the  proposed  in- 
corporators,  also  the  name  of  the  bank  and  the  location  of 
the  same.  A  copy  of  such  notice  shall  be  sent  to  every 
savings  bank  doing  business  in  such  county  at  least  fifteen 
days  before  the  filing  thereof. 

If  the  above  regulations  have  not  been  complied  with 
to  the  satisfaction  of  the  Superintendent,  he  shall  refuse 
to  file  such  certificate  until  it  shall  be  amended  in  con- 
formity with  the  provisions  of  the  law  and  the  regulations 
thereof  complied  with,  but  if  such  regulations  have  been 


140         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

complied  with  and  the  certificate  is  accompanied  with 
satisfactory  evidence  of  the  proper  publication  and  service 
in  good  faith  of  such  notice,  he  shall  forthwith  endorse 
the  same  over  his  official  signature  "  Filed  for  Examina- 
tion "  with  the  date  of  such  endorsement. 

The  Superintendent  shall  thereupon  ascertain  from  the 
best  sources  of  information  at  his  command  whether 
greater  convenience  of  access  will  be  afforded  depositors 
by  opening  a  savings  bank  in  the  place  designated, 
whether  the  population  in  the  neighborhood  designated 
affords  a  reasonable  promise  of  adequate  support  to  the 
enterprise,  and  whether  the  responsibility  of  the  persons 
named  in  the  certificate  is  such  as  to  command  the  confi- 
dence of  the  community  in  which  such  savings  bank  is 
proposed  to  be  located. 

If  the  Superintendent  shall  be  satisfied  that  the  organi- 
zation of  the  savings  bank  will  be  a  public  benefit,  he  shall, 
within  sixty  days  after  the  same  has  been  filed  by  him 
for  examination,  issue  a  certificate  to  the  persons  named 
in  such  certificate  authorizing  them  to  open  an  office  for 
the  deposit  of  savings  as  designated  in  the  certificate. 

Such  certificate  shall  be  filed  in  the  office  of  the  County 
Clerk  of  the  County  in  which  the  savings  bank  is  to  be 
located  ;  and  the  Superintendent  of  Banking  shall  also  file 
a  duplicate  of  such  certificate  in  his  own  office. 

If  the  Superintendent  shall  not  be  satisfied  that  the 
establishment  of  a  savings  bank  is  expedient  and  desira- 
ble, he  shall,  within  sixty  days  after  the  filing  thereof, 
give  notice  to  said  County  Clerk  that  he  refuses  to  issue 
a  certificate,  which  notice  shall  forthwith  be  filed  by  the 
County  Clerk  with  the  certificate  of  incorporation  of  such 
savings  bank. 

Upon  the  filing  of  any  certificate  of  authorization  the 
persons  named  therein  and  their  successors  shall  there- 
upon become  and  be  a  corporation  vested  with  all  the 
powers  and  charged  with  all  the  liabilities  conferred  and 


SAVINGS  BANKS.  141 

imposed  by  law  upon  savings  banks,  and  shall  have  power 
to  receive  on  deposit  money  and  invest  the  same  and  de- 
clare credit  and  pay  dividends  thereon  and  transact  the 
business  of  a  savings  bank.  They  possess,  however,  only 
such  powers,  rights,  and  privileges  as  are  conferred  by  the 
banking  law,  notwithstanding  anything  to  the  contrary  in 
their  respective  charters.  The  same  thing  may  be  said  as 
to  their  duties  and  liabilities. 

After  the  receipt  of  such  certificate  of  authorization  the 
bank  must  begin  business  within  a  year,  but  the  Superin- 
tendent may,  for  reasons  satisfactory  to  himself,  extend 
the  time  not  exceeding  one  year. 

The  Board  of  Trustees  consists  of  not  less  than  thirteen, 
and  to  it  the  entire  management  and  control  is  entrusted ; 
they  may  elect  a  President  and  two  Vice-Presidents,  and 
such  other  officers  as  they  deem  fit.  The  persons  named 
in  the  certificate  of  authorization  are  the  first  trustees. 
A  vacancy  in  the  Board  is  filled  by  the  Board  as  soon  as 
practicable  at  a  regular  meeting  after  the  vacancy  occurs. 
Only  residents  of  the  State  are  eligible  to  election  as  trus- 
tees, and  removal  from  the  State  by  a  trustee  acts  as  a 
vacation  of  office. 

The  Board  of  Trustees  may,  from  time  to  time,  make 
such  by-laws,  rules,  and  regulations,  not  inconsistent 
with  law,  as  they  may  think  proper  for  the  election  of 
officers,  for  prescribing  their  respective  powers  and  duties, 
the  manner  of  discharging  the  same,  for  the  appointment 
and  duties  of  committees,  and  generally  for  transacting, 
managing,  and  directing  the  affairs  of  the  corporation,  a 
copy  of  which  should  be  transmitted  to  the  Superintendent 
of  Banks,  who  should  also  be  notified  of  any  amendment 
or  change  therein. 

Regular  meetings  of  trustees,  seven  being  necessary  to 
constitute  a  quorum,  shall  be  held  as  often  as  once  a  month 
for  the  purpose  of  receiving  the  reports  of  their  officers 
and  committees  and  for  the  transaction  of  other  business. 


142         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

The  statute  provides  that  the  office  of  trustee  becomes 
vacant  whenever  its  incumbent  becomes  a  trustee,  officer, 
clerk,  or  employee  of  any  other  savings  bank,  or  when  he 
shall  borrow  directly  or  indirectly,  any  of  the  funds  of 
the  savings  bank  in  which  he  is  a  trustee,  or  become  a 
surety  or  guarantor  for  any  money  borrowed  of  or  a  loan 
made  by  such  savings  bank,  or  when  he  shall  fail  to  attend 
the  regular  meetings  of  the  Board,  or  perform  any  of  the 
duties  devolved  upon  him  as  such  trustee,  for  six  succes- 
sive months,  without  having  been  previously  excused  by 
the  Board  for  such  failure  ;  but  the  trustee  vacating  his 
office  by  failure  to  attend  meetings,  or  to  discharge  his 
duties,  may,  in  the  discretion  of  the  Board,  be  eligible  to 
re-election. 

The  trustees  shall  have  power  to  require  the  officers, 
clerks,  and  agents  of  such  bank  to  furnish  security  for  the 
faithful  performance  of  their  duties. 

No  trustee  of  any  such  corporation  can  have  any  interest 
in  the  gains  or  profits  thereof,  nor  as  such  receive  any 
payment  for  his  services,  except  that  such  of  the  trustees 
as  are  officers  of  the  corporation  or  who  act  as  the  com- 
mittee to  examine  vouchers  and  assets  may  receive  such 
compensation  as  a  majority  of  the  Board  deem  reasonable. 
No  trustee  or  officer  of  any  such  corporation  shall  for 
himself  or  as  an  agent  or  partner  of  others  borrow  any  of 
its  funds  on  deposits,  or  in  any  manner  use  the  same 
except  to  make  such  current  and  necessary  payments  as 
are  authorized  by  the  Board  of  Trustees ;  nor  shall  any 
trustee  or  officer  of  any  such  corporation  become  an 
endorser  or  surety,  or  become  in  any  manner  an  obligor 
for  moneys  loaned  by  or  borrowed  of  such  corporation. 

The  sums  deposited  with  any  savings  bank,  and  any 
dividends  or  interest  credited  thereto,  shall  be  repaid  to 
the  depositors  respectively,  or  to  their  legal  representa- 
tives, after  demand  and  under  such  regulations  as  the 
Board  of  Trustees  may  prescribe.  Such  regulations  shall 


SAVINGS  BANKS.  143 

be  posted  in  the  room  where  the  business  of  the  corpora- 
tion is  transacted,  and  printed  in  the  pass-books  furnished 
by  it,  and  constitute  evidence,  between  the  corporation 
and  the  depositors  holding  the  same,  of  the  terms  upon 
which  the  deposits  therein  acknowledged  are  made. 

Every  such  corporation  may  limit  the  aggregate  amount 
which  any  one  person  or  society  may  deposit  to  such  sum 
as  it  may  deem  expedient  to  receive,  and  may,  in  its  dis- 
cretion, refuse  to  receive  a  deposit,  and  may  also  at  any 
time  return  all  or  any  part  of  any  deposit.  The  aggregate 
amount  of  deposits  to  the  credit  of  any  individual  at  any 
time  may  not  exceed  three  thousand  dollars,  exclusive  of 
deposits  arising  from  judicial  sales  or  trust  funds  or  inter- 
est ;  and  to  the  credit  of  any  society  or  corporation  at  any 
time,  shall  not  exceed  five  thousand  dollars,  exclusive  of 
accrued  interest,  unless  such  deposit  was  made  prior  to 
May  17,  1875,  or  pursuant  to  an  order  of  a  court  of  record. 

Any  deposit  made  by  or  in  the  name  of  any  minor, 
shall  be  held  for  the  exclusive  right  and  benefit  of  such 
depositor,  and  free  from  the  control  or  lien  of  all  other 
persons,  except  creditors,  and  shall  be  paid  to  the  person 
in  whose  name  the  deposit  shall  have  been  made,  and  the 
receipt  or  acquittance  of  such  minor  shall  be  a  valid  and 
sufficient  release  and  discharge  for  such  deposit  or  any 
part  thereof  to  the  corporation. 

-A  deposit  made  by  a  person  in  trust  for  another  shall, 
in  the  event  of  the  death  of  the  trustee,  be  paid  to  the 
person  for  whom  the  deposit  was  made. 

"  The  trustees  of  any  savings  bank  may  invest  the  money 
deposited  therein  and  the  income  derived  therefrom  only  as 
follows  : 

"  i.  In  the  stocks  or  bonds,  or  interest-bearing  notes  or 
obligations  of  the  United  States,  or  those  for  which  the  faith 
of  the  United  States  is  pledged  to  provide  for  the  payment  of 
the  interest  and  principal,  including  the  bonds  of  the  District 
of  Columbia. 


144         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

"  2.  In  the  stocks  or  bonds  or  interest-bearing  obligations  of 
this  State,  issued  pursuant  to  the  authority  of  any  law  of  the 
State. 

"  3.  In  the  stocks  or  bonds  or  interest-bearing  obligations  of 
any  State  of  the  United  States  which  has  not  within  ten  years 
previous  to  making  such  investments  by  such  corporations 
defaulted  in  the  payment  of  any  part  of  either  principal  or 
interest  of  any  debt  authorized  by  the  Legislature  of  any  such 
State  to  be  contracted. 

"4.  In  the  stocks  or  bonds  of  any  city,  county,  town,  or 
village,  school  district  bonds,  and  union  free  school  district 
bonds,  issued  for  school  purposes,  or  in  the  interest-bearing 
obligations  of  any  city  or  county  of  this  State,  issued  pursuant 
to  the  authority  of  any  law  of  the  State  for  the  payment  of 
which  the  faith  and  credit  of  the  municipality  issuing  them  are 
pledged. 

"5.  In  bonds  and  mortgages  on  unencumbered  real  prop- 
erty situated  in  this  State,  worth  at  least  twice  the  amount 
loaned  thereon.  Not  more  than  sixty-five  per  cent,  of  the 
whole  amount  on  deposit  shall  be  so  loaned  or  invested.  If 
the  loan  is  on  unimproved  real  property,  the  amount  loaned 
thereon  shall  not  be  more  than  forty  per  cent,  of  its  actual 
value.  No  investment  in  any  bond  and  mortgage  shall  be 
made  by  any  savings  bank,  except  upon  a  report  of  a  commit- 
tee of  its  trustees  charged  with  the  duty  of  investigating  the 
same,  who  shall  certify  to  the  value  of  the  premises  mortgaged 
or  to  be  mortgaged  according  to  their  best  judgment,  and  such 
report  shall  be  filed  and  preserved  among  the  records  of  the 
corporation. 

"  6.  In  real  property  subject  to  the  provisions  of  the  next 
section." 

"  Every  such  corporation  may  purchase,  hold,  or  convey 
real  property  only  as  follows  : 

"  i.  A  plot  whereon  is  erected  or  may  be  erected  a  building 
or  buildings  requisite  for  the  convenient  transaction  of  its 
business,  and  from  portions  of  which,  not  required  for  its  own 
use,  a  revenue  may  be  derived.  The  cost  of  such  building  or 
buildings  and  lot  shall  in  no  case  exceed  fifty  percentum  of 


SAVINGS  BANKS.  145 

the  net  surplus  of  the  corporation,  except  by  written  permis- 
sion of  the  Superintendent  of  Banks. 

"  2.  Such  as  shall  have  been  purchased  by  it  at  sales  upon 
the  foreclosure  of  mortgages  owned  by  it,  or  on  judgments  or 
decrees  obtained  or  rendered  for  debts  due  on  it,  or  in  settle- 
ments effected  to  secure  such  debts.  All  such  real  property 
shall  be  sold  by  such  corporation  within  five  years  after  the 
same  shall  be  vested  in  it,  unless,  upon  application  by  the 
Board  of  Trustees,  the  Superintendent  shall  extend  the  time 
within  which  such  sale  shall  be  made. 

"  Every  such  corporation  may,  with  the  approval  in  writing 
and  under  the  seal  of  the  Superintendent  of  Banks,  change  its 
location  within  the  limits  of  any  city  or  town  wherein  it  may 
be  established.  In  effecting  such  change  of  location  such  cor- 
poration owning  a  banking  house  and  lot,  may  purchase  such 
additional  plot  under  the  provisions  of  subdivision  one,  of  this 
section,  as  the  corporation  may  require  ;  and  such  banking 
house  and  lot  previously  owned  and  occupied  shall  be  sold  as 
provided  in  this  subdivision  concerning  real  property  acquired 
in  satisfaction  of  debts. 

"  For  the  purpose  of  meeting  current  payments  and  expenses 
in  excess  of  the  receipts,  there  may  be  kept  an  available  fund 
not  exceeding  ten  percentum  of  the  whole  amount  of  deposits 
with  such  corporation.  Such  available  fund  may  be  loaned 
upon  pledge  of  securities,  but  not  in  excess  of  ninety  per- 
centum of  the  cash  market  value  of  such  securities  so  pledged. 

"  Should  any  of  such  securities  depreciate  in  value,  after  mak- 
ing any  loan  thereon,  the  trustees  shall  require  the  immediate 
payment  of  such  loan  or  additional  security  therefor,  so  that 
the  amount  loaned  shall  at  no  time  exceed  ninety  percentum 
of  the  market  value  of  the  securities  pledged  for  the  same." 

Such  savings  bank  may  also  deposit  temporarily  in  the 
banks  or  trust  companies  authorized  by  statute,  the  ex- 
cess of  current  daily  receipts  over  the  payments,  until  the 
same  can  be  judiciously  invested  in  the  securities  required 
by  law.  Should  it  appear  to  the  Superintendent  of  Banks 
that  the  trustees  of  any  savings  bank  are  violating  the 


146         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

spirit  and  intent  of  the  statute  in  this  respect  by  keeping 
permanently  uninvested  all,  or  an  undue  proportion  of 
the  moneys  received  by  them,  he  may  report  the  facts  to 
the  Attorney-General,  who  shall  proceed  against  such  cor- 
poration in  the  same  manner  as  against  Banks  of  Deposit. 

The  trustees  of  any  savings  bank  must  not  loan  the 
moneys  deposited  with  them  upon  any  other  personal 
securities  whatever,  and  in  all  cases  of  loans  upon  real 
property,  a  sufficient  bond  secured  by  a  mortgage  thereon 
must  be  required  of  the  owner. 

Whenever  money  is  loaned  upon  improved  property, 
such  property  must  be  insured  by  the  borrower,  and  the 
policy  of  insurance  thereof  assigned  to  the  savings  bank, 
and  in  case  the  borrower  neglects  to  insure  or  keep  in- 
sured such  improved  property,  the  Superintendent  of 
Banks  may  insure  the  same  at  the  cost  and  expense  of 
the  borrower. 

No  savings  bank  should  directly  or  indirectly  deal  or  trade 
in  real  property  in  any  other  case  or  for  any  other  purpose 
than  is  authorized  by  this  article,  or  deal  or  trade  in  any 
goods,  wares,  merchandise  or  commodities  whatever,  except 
such  personal  property  as  may  be  necessary  in  the  transaction 
of  its  business  ;  nor  shall  any  savings  bank  or  any  officer 
thereof  in  his  regular  attendance  upon  the  business  of  the 
bank,  in  any  manner  buy  or  sell  exchange  gold  or  silver,  or 
collect  or  protest  promissory  notes  or  time  bills  of  exchange. 

Savings  banks  may,  however,  sell  gold  or  silver  received  in 
payment  of  interest  or  principal  of  obligations  owned  by  them 
or  from  depositors  in  the  regular  course  of  business,  and  may 
pay  regular  depositors,  when  requested  by  them,  by  draft 
upon  deposits  to  the  credit  of  the  bank  in  the  city  of  New 
York,  and  charge  current  rates  of  exchange  for  such  drafts. 

No  savings  bank  may  issue  any  certificate  of  deposit  payable 
either  on  demand  or  at  a  fixed  day,  or  pay  any  interest  except 
regular  dividends  upon  any  deposits  or  balances,  or  pay  any 
interest,  deposit,  or  any  check  drawn  upon  itself  by  a  deposi- 


SA  VINGS  BANKS.  147 

tor,  unless  the  pass-book  of  the  depositor  be  produced,  and 
the  proper  entry  be  made  therein  at  the  time  of  the  trans- 
action. 

The  Board  of  Trustees  may,  by  their  by-laws,  provide  for 
making  payments  in  case  of  loss  of  pass-book,  or  other  excep- 
tional cases  where  the  pass-book  cannot  be  produced  without 
loss  or  serious  inconvenience  to  depositors  ;  but  the  right  to 
make  such  payments  ceases  when  so  directed  by  the  Superin- 
tendent of  Banks,  upon  his  being  satisfied  that  such  right  is 
being  improperly  exercised  by  any  savings  bank  ;  payments, 
however,  may  be  made  upon  the  judgment  or  order  of  a  court 
or  the  power  of  attorney  of  a  depositor. 

The  trustees  of  every  such  corporation  may  regulate  the 
rate  of  interest  or  dividends  not  to  exceed  five  per  centum  per 
annum  upon  the  deposits  therewith,  in  such  a  manner  that 
depositors  shall  receive,  as  nearly  as  may  be,  all  the  profits  of 
such  corporation,  after  deducting  necessary  expenses  and 
reserving  such  amounts  as  the  trustees  may  deem  expedient 
as  a  surplus  fund  for  the  security  of  the  depositors,  which,  to 
the  amount  of  fifteen  per  centum  of  its  deposits,  the  trustees 
of  any  such  corporation  may  gradually  accumulate  and  hold,  to 
meet  any  contingency  or  loss  in  its  business  from  the  deprecia- 
tion of  its  securities  or  otherwise.  The  trustees  usually 
classify  their  depositors  according  to  the  character,  amount, 
and  duration  of  their  dealings  with  the  corporation,  and  regu- 
late the  interest  or  dividends  allowed  in  such  manner  that 
each  depositor  shall  receive  the  same  ratable  portion  of 
interest  or  dividends  as  all  others  of  his  class. 

The  trustees  of  any  such  corporation  should  not  declare  or 
allow  interest  on  any  deposit  for  a  longer  period  than  the 
same  has  been  deposited,  except  that  deposits  made  not  later 
than  the  tenth  day  of  the  month  commencing  any  semi-annual 
interest  period,  or  the  third  day  of  any  month,  or  withdrawn 
upon  one  of  the  last  three  days  of  the  month  ending  any 
quarterly  or  semi-annual  interest  period,  may  have  interest 
declared  upon  them  for  the  whole  of  the  period  or  month 
when  so  deposited  or  withdrawn.. 

No  dividends  or  interest  should  be  declared,  credited,  or 


148         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

paid,  except  by  the  authority  of  a  vote  of  the  Board  of 
Trustees,  duly  entered  upon  their  minute's,  whereon  should  be 
recorded  the  ayes  and  nays  upon  each  vote  ;  but  accounts 
closed  between  dividend  periods  may  be  credited  with  interest 
at  the  rate  of  the  last  dividend,  computing  from  the  last  divi- 
dend period  to  the  date  when  closed,  if  the  by-laws  so  provide. 
Whenever  any  interest  or  dividend  shall  be  declared  and 
credited  in  excess  of  the  interest  or  profits  earned  and  appear- 
ing to  the  credit  of  the  corporation,  the  trustees  voting  for 
such  dividend  are  jointly  and  severally  liable  to  the  corpora- 
tion for  the  amount  of  such  excess  so  declared  and  credited. 

The  trustees  of  any  such  corporation  whose  surplus  amounts 
to  fifteen  per  centum  of  its  deposits,  at  least  once  in  three 
years,  shall  divide  equitably  the  accumulation  beyond  such 
authorized  surplus  as  an  extra  dividend  to  depositors,  in  excess 
of  the  regular  dividends  authorized. 

A  notice  posted  conspicuously  in  a  bank  of  a  change  in  the 
rate  of  interest  shall  be  equivalent  to  a  personal  notice. 

In  determining  the  per  cent,  of  surplus  held  by  any  savings 
bank,  its  interest-paying  stocks  and  bonds  should  not  be 
estimated  above  their  par  value  or  above  their  market  value  if 
below  par.  Its  bonds  and  mortgages  on  which  there  are  no 
arrears  of  interest  for  a  longer  period  than  six  months  are  to 
be  estimated  at  their  face,  and  its  real  property  at  not  above 
cost.  The  Superintendent  of  Banks  determines  the  valuation 
of  such  stocks  or  bonds,  or  bonds  and  mortgages,  as  are  in 
arrears  of  interest  for  six  months  or  more,  and  of  all  other 
investments,  from  the  best  information  he  can  obtain,  and  he 
may  change  the  valuation  thereof  from  time  to  time  as  he  may 
obtain  other  and  further  information. 

The  trustees  of  every  savings  bank,  by  a  committee  of  not 
less  than  three  of  their  number,  on  or  before  the  first  days  of 
January  and  July  in  each  year,  must  thoroughly  examine  the 
books,  vouchers,  and  assets  of  such  savings  bank  and  its  affairs 
generally.  The  statement  or  schedule  of  assets  and  liabilities 
reported  to  the  Superintendent  of  Banks  for  the  first  of  Janu- 
ary and  July  in  each  year  should  be  based  upon  such  exami- 
nation, and  shall  be  verified  by  the  oath  of  a  majority  of  the 


SAVINGS  BANKS.  149 

trustees  making  it  ;  and  the  trustees  of  any  savings  bank  may 
require  such  examination  at  such  other  times  as  they  shall 
prescribe.  The  trustees  must,  as  often  as  once  in  each  six 
months  during  each  year,  cause  to  be  taken  an  accurate  balance 
of  their  depositors'  ledgers,  and  in  their  semi-annual  report  to 
the  Superintendent  they  must  state  the  fact  that  such  balance 
has  been  taken. 

All  the  property  of  any  bank  or  trust  company  which  be- 
comes insolvent,  shall,  after  providing  for  the  payment  of  its 
circulating  notes,  be  applied  to  the  payment  in  full  of  any 
sum  or  sums  of  money  deposited  therewith  by  any  savings 
bank. 

The  Superintendent  shall  receive  the  moneys  so  deposited 
with  him  by  the  trustees  of  any  solvent  savings  bank  voluntarily 
closing  its  business,  and  all  moneys  which  may  be  deposited 
with  him  by  the  receivers  of  insolvent  savings  banks  pursuant 
to  the  provisions  of  any  law  or  the  order  of  any  court,  and 
shall  receive  a  receipt  therefor,  and  forthwith  deposit  the 
same  in  some  solvent  savings  bank  or  savings  banks  to  the 
credit  of  the  Superintendent  of  Banks  in  his  name  of  office,  in 
trust  for  the  depositors  and  creditors  of  the  closed  savings 
bank  from  which  they  were  received.  The  Superintendent 
shall  report  to  the  Legislature  annually  in  his  report  the  names 
of  such  closed  savings  banks  and  the  sums  of  unclaimed  and 
unpaid  deposits  to  the  credit  of  each  of  them  respectively. 

The  Superintendent  may  pay  over  to  the  persons  respectively 
entitled  thereto  the  moneys  so  held  by  him  upon  being  fur- 
nished with  satisfactory  evidence  of  their  right  to  the  same. 
In  cases  of  doubt  or  of  conflicting  claims,  he  may  require  an 
order  of  the  Supreme  Court  authorizing  and  directing  the  pay- 
ment thereof.  He  may  apply  the  interest  earned  by  the  moneys 
so  held  by  him  towards  defraying  the  expenses  in  the  payment 
and  distribution  of  such  unclaimed  dividends  to  the  depositors 
and  creditors  entitled  to  receive  the  same,  and  he  shall  include, 
in  his  annual  report  to  the  Legislature,  a  statement  of  the 
amount  of  interest  earned  by  such  unclaimed  dividends. 


CHAPTER  VII. 

Trust   Companies. 

THE  important  field  covered  by  Trust  Companies,  to- 
gether with  the  fact  of  their  comparatively  recent  growth, 
warrants  and,  in  fact,  necessitates  a  rather  lengthy  treat- 
ment of  the  subject. 

By  many  it  is  erroneously  supposed  that  these  com- 
panies are  organized  to  compete  for  business  with  banks, 
both  state  and  national.  A  careful  review,  however,  of 
the  powers  and  privileges  granted  banks,  both  national 
and  state,  including  savings  banks,  must  convince  the 
thoughtful  reader  that  such  is  not  the  case,  and  while  it 
may  appear  at  first  glance  that  many  small  accounts  which 
are  now  kept  in  trust  companies  would  otherwise  be  de- 
posited in  savings  banks,  it  must  be  borne  in  mind  that 
the  restrictions  and  regulations  of  savings  banks  in  regard 
to  the  drawing  out  of  money,  it  being  necessary  for  the 
depositor  not  only  to  make  out  a  check  but  to  present  his 
pass-book  in  person,  or  hand  the  pass-book  to  the  person 
presenting  the  check,  are  so  irksome,  that  many  of  these 
accounts  cannot  be  conveniently  and  would  not  be  kept 
therein.  In  fact,  about  the  only  thing  in  common  be- 
tween a  trust  company  and  a  savings  bank  is  that  both 
are  required  by  law  to  pay  a  certain  per  cent,  of  interest 
upon  deposits.  The  trust  company,  as  hereafter  stated, 
being  compelled  to  pay  two  per  cent.,  while  savings  banks 
are  prohibited  from  allowing  a  higher  rate  than  five. 

150 


TRUST  COMPANIES.  151 

In  order  to  point  out  more  clearly  the  difference  between 
the  business  conducted  by  a  trust  company  and  that  con- 
ducted by  an  ordinary  bank  of  deposit,  it  will  necessitate 
a  brief  statement  of  the  business  conducted  by  such  banks, 
which  is  given  more  fully  in  other  portions  of  this  work, 
particularly  those  chapters  referring  to  banks  of  deposit. 
Succinctly  stated,  the  business  of  a  bank  of  deposit 
(omitting  now  all  reference  to  the  issuing  of  circulating 
notes)  is  to  receive  money  on  deposit  from  its  depositors, 
to  whom  it  pays  no  interest  whatever,  but  in  lieu  thereof 
and  as  compensation  for  the  use  of  such  moneys  (only  25 
per  cent,  of  which  national  banks  in  the  reserve  cities  are 
required  to  keep  on  hand  to  meet  the  checks  of  its  de- 
positors, and  state  banks  are  only  required  to  keep  15  per 
cent. ;  the  balance  of  which  deposits  are  loaned  to  various 
borrowers),  it  agrees  to  discount  acceptable  commercial 
paper  offered  by  such  depositors  in  a  recognized  propor- 
tion to  the  amount  of  such  deposits.  In  order  to  be  in  a 
position  to  do  this  it  follows  that  its  loans  must  be  of  com- 
paratively small  amounts  on  rapidly  maturing  obligations  ; 
this,  of  course,  bars  out  loans  on  real  estate  or  on  settled 
securities.  National  banks  are  prohibited  by  law  from 
making  loans  on  real  estate,  and  are  only  permitted  to  re- 
ceive real  estate  as  additional  security  for  loans  previously 
made,  and  while  State  banks  of  deposit  are  not  prohibited 
by  the  State  law  from  so  doing,  nevertheless,  as  a  matter 
of  good  banking,  they  also  carefully  avoid  loans  of  this 
character.  In  other  words,  the  policy  of  a  bank  is  first  to 
secure  large  deposits  on  which  they  have  to  pay  no  inter- 
est, and  to  make  a  great  number  of  small  loans  on  short- 
time  paper ;  while  that  of  a  trust  company  is  to  make 
loans  large  in  amount  running  for  a  considerable  time,  and 
to  receive  only  deposits  which  will  not  be  immediately 
drawn  out  or  seriously  diminished,  but  which  they  must 
be  able  to  loan  at  a  higher  rate  than  two  per  cent.,  which 
the  law  requires  them  to  pay  the  depositor. 


I$2         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

In  the  complex  life  of  highly  civilized  and  wealthy 
communities,  this  leaves  a  field  open,  which  field,  among 
others,  trust  companies  are  designed  to  cover. 

The  class  of  persons  who  constitute  their  depositors 
are  salaried  and  professional  men,  who  deposit  moneys 
for  which  they  have  no  immediate  or  shortly  anticipated 
need  ;  business  men  accumulating  a  fund  for  some  specific 
purpose  or  their  individual  profits;  married  women  with 
separate  estates,  who  deposit  the  principal,  drawing,  as  a 
rule,  only  the  interest  thereon  ;  administrators,  executors, 
trustees,  and  committees,  whose  deposits  are  generally 
permanent,  and  not  likely  to  fluctuate  greatly  in  amount ; 
assignees  and  receivers,  whose  deposits,  though  for  a 
shorter  time,  are  of  practically  a  uniform  amount  while 
they  last. 

From  the  comparatively  stationary  and  uniform  char- 
acter of  its  deposits,  not  to  speak  of  the  amount  in  its 
hands  as  executor,  administrator,  assignee,  receiver,  or 
committee,  and  over  which  it  has  absolute  control,  trust 
companies  are  in  a  position,  and  find  it  advantageous,  to 
make  loans  of  larger  amount  and  longer  duration  than  do 
banks ;  and  as  real  estate  is  the  one  thing  of  greatest  and 
most  staple  value  in  a  community,  it  naturally  forms  the 
most  desirable  thing  on  which  to  make  such  loans. 

But  before  money  can  be  loaned  or  invested  to  advan- 
tage, either  in  real  estate  or  in  stocks  and  bonds,  it  is 
necessary  that  a  sufficient  amount  should  be  accumulated. 
It  is  in  the  collection  and  accumulation  of  these  amounts 
which,  until  they  have  arrived  at  a  sufficiently  large  sum, 
are  deposited  daily  by  the  trust  companies  in  banks,  and 
on  which  daily  balances  the  banks  allow  them  interest  for 
the  use  of  such  money,  that  the  trust  company  becomes, 
not  a  competitor,  but  a  powerful  auxiliary  to  banks  of 
deposit ;  gathering  in  and  bringing  together,  as  they  do, 
accounts  which  would  be  of  no  value  to  the  banks,  but 
which,  when  consolidated  into  one  account  and  deposited 
by  a  trust  company,  become  of  great  value. 


TRUST  COMPANIES.  153 

Thus  far  we  have  spoken  of  trust  companies  almost  ex- 
clusively in  their  relation  to  banks.  It  must  be  borne  in 
mind  that  this  is  not  the  chief  object,  but  merely  an  inci- 
dent growing  out  of  their  organization.  We  will  now 
consider  the  real  object  of  their  formation,  which  is : 

To  act  in  a  fiduciary  capacity  as  fiscal  agent,  trustee, 
executor,  administrator,  assignee,  receiver,  or  committee 
either  for  individuals  or  corporations.  Heretofore  these 
various  offices  and  the  duties  pertaining  to  them  have 
been  discharged  by  individuals. 

The  advantages  of  entrusting  the  performance  of  such 
important  duties  to  a  corporation  whose  life  is  perpetual 
during  its  corporate  existence,  which  in  this  State  is  fifty 
years,  and  whose  charter  can  be  renewed,  which  is  never 
sick  or  incapacitated  for  the  discharge  of  its  duties,  whose 
management  is  confided  to  some  of  the  most  successful, 
wealthy,  and  reputable  business  and  professional  men  in 
the  community,  whose  combined  experience  and  knowl- 
edge of  affairs  must  be  greater  than  that  of  even  the  most 
astute  and  well-informed  business  man,  besides  which  they 
devote  an  amount  of  time  and  labor  to  the  study  and 
investigation  of  property  and  business  affairs,  the  value 
of  real  and  personal  property,  which  it  would  be  obviously 
impossible  for  one  person  to  do,  and  their  capital  surplus 
and  assets,  which  are  invested  not  alone  in  one  industry, 
but  in  many,  and  which  are  liable  for  the  faithful  perform- 
ance of  their  duties,  furnish  greater  security  than  those  of 
an  individual  trustee.  That  the  appointment  of  such  a 
company  in  any  of  the  above  capacities  is  more  desirable 
than  that  of  an  individual,  whose  time  is  necessarily 
largely  employed  in  his  own  affairs,  and  whose  tenure  of 
life  and  capacity  is  uncertain,  is  too  manifest  to  require 
argument. 

To  enumerate  the  different  trusts  which  are  best  re- 
posed in  these  companies  is  to  repeat  Section  156  of  the 
Banking  Laws  of  this  State,  which  is  quoted  farther  on, 
and  to  which  the  reader  is  referred. 


154         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

While  the  law  does  not  specifically  state  that  trust 
companies  shall  receive  deeds,  agreements,  securities,  or 
papers  or  things  in  escrow,  still,  on  account  of  the  confi- 
dence which  they  inspire,  they  are  often  used  for  such 
purpose. 

Probably  the  greatest  and  most  common  field  of  useful- 
ness occupied  by  trust  companies  is  acting  in  the  capacity 
of  trustee  of  stock  and  bondholders  in  the  formation  or 
reorganization  of  corporations.  A  corporation  is  organ- 
ized, but  before  its  securities  can  be  advantageously 
brought  to  the  attention  of  the  investing  public,  it  be- 
comes necessary  that  some  one  in  whom  the  public  have 
implicit  confidence,  and  who  will  not  be  swayed  by  per- 
sonal considerations  or  friendships,  should  investigate  the 
property  which  has  been  incorporated,  inquire  into  the 
title  to  its  plant,  the  legality  of  its  franchises,  see  that  the 
mortgage  is  properly  drawn  and  covers  the  property 
which  it  purports  to  mortgage,  and  that  all  the  legal  re- 
quirements in  regard  to  the  incorporation  of  the  com- 
pany, the  filing  of  its  certificate  of  incorporation,  the 
payment  in  of  the  capital  required,  the  payment  to  the 
State  of  the  corporation  tax,  and  all  other  legal  require- 
ments have  been  duly  complied  with,  and  certify  to  the 
regularity  thereof,  and  to  investigate,  supervise,  and  cer- 
tify to  the  issue  of  bonds,  and  to  the  issue  and  registra- 
tion of  stock,  and  that  there  has  been  no  over-issue  in 
either  case.  Who  can  do  this  better  than  a  trust  com- 
pany, they  frequently  being  the  authorized  registrar  of 
the  stock  of  the  corporation  ? 

Not  only  have  companies  to  be  organized,  but  almost 
as  frequently  reorganized,  when  it  becomes  necessary  for 
the  stockholders  to  secure  unity  of  action  upon  their 
part,  to  respectively  appoint  some  one  to  act  in  their 
stead,  to  receive  and  register  the  outstanding  securities, 
and,  upon  the  deposit  with  it  of  a  fixed  amount,  to  reor- 
ganize the  company  and  to  issue  new  securities  for  the 


TRUST  COMPANIES.  155 

old,  and  to  register  and  transmit  to  the  depositors  new 
securities  in  the  proportion  agreed  upon  in  place  of  the 
securities  deposited. 

Very  often  the  formulating  of  the  plan  by  which  this 
re-organization  is  accomplished  and  the  fixing  of  the  basis 
of  exchange  of  the  old  securities  for  the  new  is  undertaken 
and  carried  through  by  a  trust  company. 

The  procuring  of  a  well  known  company  to  undertake 
such  re-organization  in  most  instances  tends  greatly  to  the 
success  of  the  re-organization,  and  the  fact  that  a  com- 
pany of  good  repute  is  the  trustee  or  registrar  of  the 
bonds  and  stock  of  a  corporation  adds  very  appreciably 
to  the  value  of  such  securities. 

Trust  companies  also  act  as  agents  for  the  payment  of 
obligations  maturing  at  future  dates,  such  as  the  premiums 
on  policies  of  insurance,  assessments  on  stocks,  interest 
on  mortgages,  etc.,  and  for  the  collection  of  coupons,  of 
interest,  of  premiums,  and  so  on. 

As  agents  for  the  stock  and  bond  holders  of  various 
kinds  of  corporations,  who  desire  to  act  as  a  unit. 

Also  as  registrar,  where  such  certificates  may  be  regis- 
tered so  as  to  indemnify  the  holder  against  loss  in  case 
such  certificate  should  be  lost  or  destroyed. 

In  the  case  of  individuals,  they  act  as  the  trustees  of 
special  funds  for  the  benefit  of  married  women,  or  minors, 
for  insane  persons,  habitual  drunkards,  lunatics,  or  for  de- 
visees whom  the  giver  may  regard  as  incompetent  to  take 
care  of  the  funds  so  placed  in  trust.  For  a  corporation 
for  the  accumulation  of  a  sinking  fund,  etc. 

Trust  Companies  are  organized  exclusively  under  the 
laws  of  the  State  in  which  they  are  located,  and  are  subject 
to  the  supervision  of  the  State  Banking  Department,  the 
same  as  State  Banks. 

The  powers  and  privileges  granted  them  are  much 
greater  than  those  granted  banks,  except  that  they  are 
not  permitted  to  issue  circulating  notes,  but  may  in  all 


156          PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

other  ways  perform  the  functions  of  a  bank  in  addition  to 
those  specially  conferred  on  them.  These  powers  and 
privileges  are  best  enumerated  in  the  language  of  the  law 
under  which  they  are  organized. 

"  Section  156  :  Upon  the  filing  of  any  such  certificate  of 
authorization  of  a  trust  company,  the  persons  named  therein 
and  their  successors  shall  thereupon  and  thereby  become  a 
corporation,  and  in  addition  to  the  powers  conferred  by  the 
general  and  stock  corporation  laws,  shall  have  power  : 

"  i.  To  act  as  the  fiscal  or  transfer  agent  of  any  State,  mu- 
nicipality, body  politic,  or  corporation  ;  and  in  such  capacity 
to  receive  and  disburse  money,  and  transfer,  register,  and 
countersign  certificates  of  stock,  bonds,  or  other  evidences  of 
indebtedness. 

"  2.  To  receive  deposits  of  trust  money,  securities,  and  other 
personal  property  from  any  person  or  corporation,  and  to  loan 
money  on  real  or  personal  securities. 

"  3.  To  lease,  hold,  purchase,  and  convey  any  and  all  real 
property  necessary  in  the  transaction  of  its  business,  or  which 
the  purposes  of  the  corporation  may  require,  or  which  it  shall 
acquire  in  satisfaction  or  partial  satisfaction  of  debts  due  the 
corporation  under  sales,  judgments,  or  mortgages,  or  in  settle- 
ment or  partial  settlement  of  debts  due  the  corporation  by  any 
of  itfe  debtors. 

"  4.  To  act  as  trustee  under  any  mortgage  or  bond  issued 
by  any  municipality,  body  politic,  or  corporation,  and  accept 
and  execute  any  other  municipal  or  corporate  trust  not  incon- 
sistent with  the  laws  of  this  State. 

"  5.  To  accept  trusts  from  and  execute  trusts  for  married 
women,  in  respect  to  their  separate  property,  and  to  be  their 
agent  in  the  management  of  such  property,  or  to  transact  any 
business  in  relation  thereto. 

"  6.  To  act  under  the  order  of  appointment  of  any  court  of 
record  as  guardian,  receiver,  or  trustee  of  the  estate  of  any 
minor,  the  annual  income  of  which  shall  not  be  less  than  one 
hundred  dollars,  and  as  depositary  of  any  moneys  paid  into 
court,  whether  for  the  benefit  of  any  such  minor,  or  other 
person,  corporation,  or  party. 


TRUST  COMPANIES.  157 

"  7.  To  take,  accept,  and  execute  any  and  all  such  legal 
trusts,  duties,  and  powers  in  regard  to  the  holding,  manage- 
ment, and  disposition  of  any  estate,  real  or  personal,  and  the 
rents  and  profits  thereof,  or  the  sale  thereof,  as  may  be  granted 
or  confided  to  it  by  any  court  of  record,  or  by  any  person, 
corporation,  municipality,  or  other  authority  ;  and  it  shall  be 
accountable  to  all  parties  in  interest  for  the  faithful  discharge 
of  every  such  trust,  duty,  or  power  which  it  may  so  accept. 

"  8.  To  take,  accept,  and  execute  any  and  all  such  trusts  and 
powers  of  whatever  nature  or  description  as  may  be  conferred 
upon  or  intrusted  or  committed  to  it  by  any  person  or  persons, 
or  any  body  politic,  corporation,  or  other  authority,  by  grant, 
assignment,  transfer,  devise,  bequest,  or  otherwise,  or  which 
may  be  intrusted  or  committed  or  transferred  to  it,  or  vested 
in  it  by  order  of  any  court  of  record,  or  any  surrogate,  and 
to  receive  and  take  and  hold  any  property  or  estate,  real  or 
personal,  which  may  be  the  subject  of  any  such  trust. 

"  9.  To  purchase,  invest  in,  and  sell  stocks,  bills  of  ex- 
change, bonds  and  mortgages,  and  other  securities  ;  and  when 
moneys,  or  securities  for  moneys,  are  borrowed  or  received  on 
deposit,  or  for  investment,  the  bonds  or  obligations  of  the 
company  may  be  given  therefor,  but  it  shall  have  no  right  to 
issue  bills  to  circulate  as  money. 

"  10.  To  be  appointed  and  to  accept  the  appointment  of 
executor  of  or  trustee  under  the  last  will  and  testament,  or 
administrator  with  or  without  the  will  annexed,  of  the  estate 
of  any  deceased  person,  and  to  be  appointed  and  to  act  as  the 
committee  of  the  estates  of  lunatics,  idiots,  persons  of  unsound 
mind,  and  habitual  drunkards. 

"  No  such  corporation  shall  have  any  right  or  power  to  make 
any  contract,  or  to  accept  or  execute  any  trust  whatever,  which 
it  would  not  be  lawful  for  any  individual  to  make,  accept,  or 
execute. 

u  No  loan  shall  be  made  by  any  such  corporation,  directly, 
or  indirectly,  to  any  director  or  officer  thereof. 

"  No  such  corporation  shall  transact  its  ordinary  business  by 
branch  office  in  any  city  not  named  in  its  Certificate  of  In- 
corporation or  Charter  as  the  place  where  its  business  is  to  be 
transacted." 


158          PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

Thirteen  or  more  persons  may  form  a  trust  company, 
upon  filing  a  certificate  stating  the  name  of  such  company, 
its  place  of  business,  the  amount  of  its  capital,  and  the 
number  of  shares  into  which  it  is  divided,  the  name, 
residence,  and  post-office  address  of  each  member  of  the 
corporation,  and  the  term  of  the  existence  of  such 
company,  which  shall  not  exceed  fifty  years,  and  a  declara- 
tion that  each  member  of  such  corporation  will,  if  elected 
a  director,  faithfully  discharge  the  obligations  and  re- 
sponsibilities of  such  office.  This  certificate  must  be 
filed  with  the  Superintendent  of  Banking  of  the  State 
within  sixty  days  after  its  execution,  and  a  duplicate  must 
be  filed  in  the  office  of  the  county  clerk  of  the  county 
where  such  company  is  to  carry  on  business. 

The  minimum  capital  of  such  companies  shall  be  as 
follows  :  In  cities  containing 

25,000  inhabitants  or  less $100,000 

25,000  inhabitants  or  more 150,000 

100,000  to  250,000 200,000 

More  than  250,000 500,000 

Before  filing  such  certificate  notice  must  be  published 
at  least  once  a  week  for  four  successive  weeks  in  a  news- 
paper to  be  designated  by  the  Superintendent  of  Banks  in 
the  city  where  such  trust  company  is  to  be  located,  and 
shall  set  forth  the  facts  so  stated  in  the  certificate  of 
organization.  This  notice  must  be  sent  to  every  trust 
company  doing  business  in  such  city  at  least  fifteen  days 
before  the  filing  of  the  organization  certificate. 

The  Superintendent  upon  the  receipt  of  such  certificate 
conforming  to  the  provisions  of  this  act,  as  to  execution, 
notice,  etc.,  shall  file  the  same,  and  he  shall  then  proceed 
to  ascertain  the  fitness  of  the  persons  named  for  the  dis- 
charge of  the  trust  which  they  ask  permission  to  assume, 
and  if  such  investigation  prove  satisfactory,  he  shall 
within  sixty  days  after  the  filing  of  such  certificate,  and 
after  knowledge  that  the  entire  capital  stock  has  been 


TRUST  COMPANIES.  159 

paid  in,  in  cash,  issue  under  his  seal  a  "  Certificate  of 
Authorization  "  to  the  incorporators  to  commence 
business,  which  shall  be  transmitted  to  the  County  Clerk, 
who  shall  file  the  same  and  attach  it  to  the  organization 
certificate  and  record  both  certificates  in  the  records  of 
incorporation.  A  duplicate  of  such  certificate  ot 
authorization  shall  be  filed  by  the  Superintendent  in  his 
office. 

The  Superintendent,  may,  however,  if  he  deem  such 
organization  inexpedient  refuse  to  issue  a  certificate  of 
authorization,  and  shall  file  a  notice  of  such  refusal  with 
said  County  Clerk. 

Section  157  provides  that  letters  testamentary,  of 
guardianship,  of  administration  with  the  will  annexed,  and 
the  like,  may,  in  a  proper  case,  be  granted  to  trust 
Companies,  the  only  exception  being  that  of  simple  letters 
of  administration  to  which,  in  a  like  case,  the  Public  Ad- 
ministrator is  entitled. 

Upon  the  appointment  of  a  trust  company  as  executor, 
the  Court  does  not  require  the  filing  of  a  bond  for  the 
faithful  performance  of  its  duties  as  in  the  case  of  an 
individual,  but  the  capital  stock,  property,  and  effects  of 
such  trust  company  shall  be  held  liable  therefor,  and  the 
debts  due  by  said  corporation  as  executor,  administrator, 
guardian,  trustee,  committee,  or  depositary  shall  have  the 
preference.  Power,  however,  is  given  the  courts  to  re- 
quire trust  companies  to  give  security,  and  upon  their 
failure  so  to  do  the  court  is  empowered  to  remove  such 
trust  company  from  the  exercise  of  such  trust. 

They  may  be  required  to  furnish  statements  and 
accounts  as  executor,  administrator,  guardian,  trustee, 
etc.,  in  the  same  manner  as  a  natural  person. 

"  The  capital  of  every  such  corporation  shall  be  invested  in 
bonds  and  mortgages  on  unincumbered  real  property  in  this 
State  worth  at  least  double  the  amount  loaned  thereon,  or  in 
the  stocks  or  bonds  of  this  State,  or  of  the  United  States,  or 


100         PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

of  any  county,  or  incorporated  city  of  this  State  duly  authorized 
by  law  to  be  issued. 

"  The  moneys  received  by  any  such  corporation  in  trust 
may  be  invested  in  its  discretion  in  the  securities  of  the  same 
kind  in  which  its  capital  is  required  to  be  invested,  or  in  the 
stocks  or  bonds  of  any  State  of  the  United  States,  or  in  such 
real  or  personal  securities  as  it  may  deem  proper.  No  such 
corporation  shall  hold  stock  in  any  private  corporation  to  an 
amount  in  excess  of  ten  per  cent,  of  the  capital  of  the  corpora- 
tion holding  such  stock." 

Interest  must  be  paid  on  all  sums  of  money  over  one 
hundred  dollars  collected  and  received  by  such  corpora- 
tion acting  as  executor,  administrator,  guardian,  trustee, 
receiver,  etc.,  of  any  court,  or  in  any  fiduciary  capacity 
under  such  appointment,  or  as  a  depositary  of  moneys 
paid  into  court  at  a  rate  of  not  less  than  two  per  cent,  per 
annum,  until  the  money  so  received  shall  be  expended  or 
distributed.  All  of  such  interest  moneys  which  are  not 
collected  annually  shall  be  added  to  the  principal,  and 
interest  thereon  shall  be  paid. 

"  The  affairs  of  every  such  corporation  shall  be  managed 
and  its  corporate  powers  exercised  by  a  Board  of  Directors  of 
such  number,  not  less  than  thirteen  or  more  than  twenty-four, 
as  shall,  from  time  to  time,  be  prescribed  in  its  by-Laws.  No 
person  can  be  a  director  who  is  not  the  holder  of  at  least  ten 
shares  of  the  capital  stock  of  the  corporation.  The  persons 
named  in  the  organization  certificate,  or  such  of  them  respec- 
tively as  shall  become  holders  of  at  least  ten  shares  of  such 
stock,  shall  constitute  the  first  Board  of  Directors,  and  may 
add  to  their  number  not  exceeding  the  limit  of  twenty-four,  and 
shall  severally  continue  in  office  until  others  are  elected  to  fill 
their  respective  places.  Within  six  months  from  the  time 
when  such  corporation  shall  commence  business,  the  first 
Board  of  Directors  shall  classify  themselves  by  lot  into  three 
classes,  as  nearly  equal  as  may  be.  The  term  of  office  of  the 
first  class  shall  expire  on  the  third  Wednesday  of  January 


TRUST  COMPANIES.  l6l 

next  following  such  classification  ;  the  term  of  office  of  the 
second  class  shall  expire  one  year  thereafter  ;  and  the  term  of 
office  of  the  third  class  shall  expire  two  years  thereafter.  At 
or  before  the  expiration  of  the  term  of  the  first  class,  and 
annually  thereafter,  a  number  of  directors  shall  be  elected 
equal  to  the  number  of  directors  whose  term  will  then  expire, 
who  shall  hold  their  offices  for  three  years  or  until  their 
successors  are  elected. 

"  Such  election  shall  be  held  at  the  office  of  the  corporation 
and  at  such  time  and  upon  such  public  notice,  not  less  than 
ten  days,  by  advertisement  in  at  least  one  newspaper,  approved 
by  the  Superintendent  of  Banks,  published  in  the  city  where 
such  corporation  is  located,  as  shall  be  prescribed  in  the  by- 
laws." 

In  case  of  failure  to  elect  any  director  on  the  day  named, 
the  directors  whose  terms  of  office  do  not  that  year  expire, 
may  proceed  to  elect  a  number  of  directors  equal  to  the  num- 
ber in  the  class  whose  term  that  year  expires,  or  such  number 
as  may  have  failed  of  re-election.  The  persons  so  elected, 
together  with  the  directors  whose  terms  of  office  shall  not  that 
year  expire,  shall  constitute  the  Board  of  Directors  until 
another  election  shall  be  held  according  to  law.  Vacancies 
occurring  in  the  intervals  of  elections  shall  be  filled  by  the 
Board. 

"  If  default  shall  be  made  in  the  payment  of  any  debt  or 
liability  contracted  by  any  such  corporation,  the  stockholders 
thereof  shall  be  individually  responsible,  equally  and  ratably, 
for  the  then  existing  debts  of  the  corporation,  but  no  stock- 
holder shall  be  liable  for  the  debts  of  the  corporation  to  an 
amount  exceeding  the  par  value  of  the  respective  shares  of 
stock  by  him  held  in  such  corporation  at  the  time  of  such 
default. 

*'  For  all  losses  of  money  which  the  capital  stock  shall  not  be 
sufficient  to  satisfy,  the  directors  shall  be  responsible  in  the 
same  manner  and  to  the  same  extent  that  directors  are  now 
responsible  in  law  or  equity. 

"  Every  trust  company  incorporated  by  a  special  law  shall 

possess  the  powers  of  trust  companies  incorporated  under  the 
ii 


1 62         PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

general  law,  and  shall  be  subject  to  such  provisions  thereof 
as  are  not  inconsistent  with  the  special  laws  relating  to  such 
specially  chartered  company." 

The  consolidation  or  merger  of  trust  companies  is  pro- 
vided for  by  an  act  which  went  into  effect  April  23,  1895. 
See  page  102  State  Banks. 

It  is  true  that  w*hile  trust  companies  are  compelled  by 
law,  as  stated  in  Section  160,  to  pay  interest  on  all  sums 
in  their  hands  held  in  certain  capacities,  yet  the  rate  of 
interest  is  lower  than  that  paid  by  savings  banks,  although 
the  money  on  deposit  in  the  trust  company  is  subject  to  im- 
mediate withdrawal,  whereas  a  savings  bank  may  require, 
according  to  its  constitution  and  by-laws  and  the  regula- 
tions printed  in  its  pass-books,  a  notice  of  sixty  days. 

The  sources  of  income  are  much  more  diversified  than 
in  the  case  of  banks.  Drawing  a  large  part  of  their  revenue 
from  acting  in  the  different  fiduciary  capacities  for  which 
they  are  created,  and  for  which  services  they  charge  a 
commission,  and  being  less  restricted  as  to  the  character, 
nature,  and  time  of  their  loans,  they  can  make  many 
which  the  banks  cannot.  A  very  large  portion  of  its 
loans  are  upon,  or  secured  by,  real  estate.  In  fact,  loans 
upon  real  estate  in  the  cities  are  effected,  almost  exclus- 
ively, through  savings  banks,  trust  and  life  insurance 
companies. 

Probably  the  largest  source  of  income  of  trust  com- 
panies of  New  York  is  acting  as  the  financial  agent  of 
corporations. 


CHAPTER  VIII. 

Safe  Deposit   Companies — Building   and   Mutual   Loan  Associations — Co- 
operative  Loan  Associations — Mortgage  and  Debenture  Companies. 

Safe  Deposit  Companies. 

THESE  companies  may  be  aptly  called  the  "  warehouses 
of  finance,"  occupying  the  same  relation  to  it  that  storage 
warehouses  do  to  commerce. 

Article  VII.  of  the  State  banking  laws,  which  provides 
for  the  organization  of  these  companies,  states  that  they 
may  be  incorporated  by  five  or  more  persons  for  the 
purpose  of  taking  and  receiving  upon  deposit  as  bailee 
for  safe  keeping  and  storage  jewelry,  plate,  money,  specie, 
bullion,  stocks,  bonds,  securities,  and  valuable  papers  of 
any  kind,  and  other  valuable  personal  property,  and  guar- 
anteeing their  safety  upon  such  terms  and  for  such  com- 
pensation as  may  be  agreed  upon  by  it  and  the  respective 
bailors  (depositors)  thereof ;  and  to  let  out  vaults,  safes, 
and  other  receptacles  for  the  uses  and  purposes  of  such 
corporations,  by  making  and  filing  with  the  County  Clerk 
of  the  County,  where  the  same  may  be  located,  and  the 
Superintendent  of  Banking,  a  certificate  similar  to  that 
required  of  other  corporations  organized  under  the  bank- 
ing law. 

The  law  provides  that  its  capital  shall  not  be  more  than 
$1,000,000  nor  less  than  $100,000,  except  in  cities  or  vil- 
lages of  less  than  100,000  inhabitants,  where  the  same 
shall  not  be  less  than  $10,000;  the  term  of  its  corporate 
existence  shall  not  exceed  fifty  years ;  it  shall  not  com- 

163 


164         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

mence  or  transact  business,  not  make  any  loans  or  advances 
on  any  property  left  with  it  for  storage  or  safe  keeping, 
until  the  whole  amount  of  its  capital  stock  has  been  paid 
in  ;  and  until  its  certificate  has  been  approved  by  the 
Superintendent  of  Banks  and  duly  filed,  as  in  the  case  of 
other  banking  corporations. 

Its  affairs  shall  be  managed  by  not  less  than  five  or 
more  than  thirteen  directors,  who  shall  be  stockholders, 
and  a  majority  of  whom  shall  be  citizens  of  this  State, 
which  directors  shall,  after  the  first  year,  be  annually 
elected  at  the  time  and  place  prescribed  by  its  laws, 
notice  of  which  shall  be  published  ten  days  before  the 
election  in  a  newspaper  in  the  place  where  its  business  is 
conducted. 

The  directors  may  make  such  by-laws  as  they  shall  deem 
proper  for  the  management,  disposition  of  the  stocks, 
property,  and  business  affairs  of  the  corporation ;  pre- 
scribing the  duties  of  officers  and  employees,  the  manner 
of  the  appointment  and  election  of  all  officers,  and  for 
carrying  on  all  kinds  of  business  within  the  objects  and 
purposes  of  the  corporation. 

There  shall  be  a  President,  to  be  selected  from  among 
the  directors,  and  such  subordinate  officers  as  the  by-laws 
may  designate,  who  may  be  appointed  or  elected.  The 
Board  may  require  of  the  officers  and  employees  of  the 
company  such  security  or  bonds  for  the  faithful  perform- 
ance of  their  duties  as  it  may  deem  necessary. 

The  stockholders  shall  be  jointly  and  severally  liable 
for  all  debts  due  and  owing  by  the  corporation  to  an 
amount  equal  to  the  par  value  of  their  stock  therein  over 
and  above  such  stock,  to  be  recovered  of  the  stockholders 
who  are  such  when  the  debt  is  contracted  or  the  loss 
or  damage  sustained,  or  of  any  subsequent  stockholder. 
Any  stockholder  who  may  have  paid  any  demand  against 
such  corporation  either  voluntarily  or  by  compulsion  shall 
have  a  right  to  resort  to  the  rest  of  the  stockholders  who 


SAFE  DEPOSIT  COMPANIES.  165 

are  liable  to  contribution ;  and  the  dissolution  of  the  cor- 
poration shall  not  release  or  affect  the  liability  of  any 
stockholder  which  may  have  been  incurred  before  disso- 
lution. 

If  the  rent  due  for  any  safe  or  box  shall  remain  unpaid 
for  three  years,  the  company  may  cause  to  be  sent  to  the 
person  in  whose  name  the  safe  or  box  stands,  a  written 
notice  in  a  registered  letter,  directed  to  him  at  the  address 
recorded  on  its  books,  notifying  him  that  if  the  rent  due 
is  not  paid  within  sixty  days,  then  it  will  cause  the  said 
safe  or  box  to  be  opened  in  the  presence  of  its  president, 
secretary,  or  treasurer,  and  a  notary  public  not  in  its  em- 
ploy, and  the  contents  thereof  to  be  taken  therefrom,  to 
be  sealed  by  the  notary  in  a  package  upon  which  he  shall 
distinctly  mark  the  name  and  address  of  the  person  in 
whose  name  the  same  may  stand  upon  the  books  of  the 
company,  and  the  estimated  value  thereof,  and  the  pack- 
age so  sealed  and  addressed,  when  marked  for  identifica- 
tion by  the  notary,  will  be  placed  by  him  in  one  of  the 
general  safes  or  boxes  of  the  corporation.  Upon  the  ex- 
piration of  sixty  days  from  the  date  of  mailing  such  notice, 
if  such  rent  is  not  then  paid,  the  company  may  itself  pro- 
ceed and  direct  the  notary  to  act  as  above,  after  doing 
which  his  proceedings  shall  be  fully  set  out  by  him  in  his 
own  handwriting  and  under  his  official  seal  in  a  book  to 
be  kept  by  the  corporation  for  that  purpose. 

The  capital  of  these  companies,  when  merely  used  as  a 
place  for  the  storage  of  valuables,  is  not  so  much  a  matter 
of  importance  as  the  character  of  the  precautions  taken  to 
avoid  allowing  any  one  not  entitled  having  access  to  the 
boxes  or  safes,  the  kind  of  identification  required,  the  fact 
that  its  walls  are  fire-  and  burglar-proof,  as  none  of  these 
companies  have  sufficient  capital  to  make  good  the  loss  of 
valuables  which  the  loss  of  the  contents  of  one  safe  might 
entail. 

Each  box  or  safe  holder  is  furnished  by  the  company 


1 66         PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

with  a  box  or  safe,  and  the  key  or  combination  to  it,  and 
is  made  known  to  the  outer  and  inner  doorkeepers.  He 
is  always  given  a  password,  by  the  use  of  which  he  can 
secure  admittance,  if  not  otherwise  recognized  by  the 
doorkeepers.  The  safes  and  boxes  are  arranged  in  rows 
one  above  another  on  the  walls  and  in  the  middle  of  a 
large  fire-proof  vault,  the  entrance  to  which  is  guarded  by 
heavy  iron  bar  doors ;  the  windows,  where  there  are  any, 
are  guarded  in  the  same  way.  In  this  vault,  at  conven- 
ient places,  are  cages  made  of  iron,  in  which  subscribers 
may  go  and  lock  themselves  in,  no  one  from  the  outside 
except  an  attendant  being  able  to  enter,  and  there  cut 
their  coupons,  examine  their  securities,  etc.,  in  absolute 
safety.  After  a  subscriber  leaves  one  of  these  cages,  a 
trusted  employee  enters  the  same  and  makes  a  careful 
search  to  see  if  the  subscriber  has  left  any  paper  or  thing 
of  value,  and  if  he  has,  the  same  is  taken  and  put  in  charge 
of  the  proper  officer,  who  returns  the  same  to  the  sub- 
scriber. * 

It  is  not  only  much  safer  and  more  secure  to  keep  val- 
uables in  the  safe  and  boxes  of  these  companies  than  in 
safes  at  an  office  or  residence,  but  oftentimes  more  con- 
venient. 

The  location  of  the  company  is  a  controlling  element  in 
the  charges  made  by  it.  There  is  no  uniform  charge  by 
all  companies  for  the  same  size  safe  or  box.  In  each 
company  the  rent  is  regulated  by  the  size  of  the  safe  or 
box  rented. 

Nearly  all  men  of  means  have  their  safes  and  boxes  in 
one  or  more  of  these  companies,  and  when  their  families 
go  away  from  home  send  their  jewels  and  silver  to  be 
stored  ;  and  even  when  they  are  home  the  family  jewels, 
when  not  in  actual  use,  are  so  deposited  for  safe  keep- 
ing. 

In  regard  to  consolidation  see  page  102,  State  Banks. 


BUILDING  AND  MUTUAL   LOAN  ASSOCIATIONS.      l6/ 

Building  and  Mutual  Loan  Associations. 

(Commonly  called  Building  and  Loan  Associations.) 

The  very  large  amount  of  money  invested  in  these  asso- 
ciations, which  in  1893  in  the  United  States  was  about 
$900,000,000,  $37,285,173  of  which  was  in  the  State  of 
New  York,  and  $25,000,000  in  the  State  of  New  Jersey, 
together  with  their  rapid  growth  and  wide  spread,  require 
a  somewhat  lengthy  statement  of  their  objects  and  aims, 
which,  while  they  differ  slightly  in  individual  cases,  are, 
taken  broadly,  the  same. 

In  New  York  these  associations  are  organized,  under 
Article  V.  of  the  Banking  Laws  of  the  State  of  New  York, 
1892,  which  defines  the  purpose  for  which  they  are  created 
to  be: 

"  The  accumulation  of  a  fund  for  the  purchase  of  real  prop- 
erty, the  erection  of  buildings,  the  making  of  improvements  on 
lands,  the  payment  of  encumbrances  thereon,  and  to  aid  its 
members  in  the  accomplishment  of  all  or  any  of  the  above  ob- 
jects, and  the  accumulation  of  a  fund  to  be  returned  to  its 
members  who  do  not  obtain  such  advances  when  it  shall 
amount  to  a  certain  sum  per  share,  to  be  specified  in  the  cer- 
tificate of  incorporation." 

The  method  by  which  these  aims  are  sought  to  be  ac- 
complished perhaps  demand  some  explanation. 

The  basis  of  these  associations  is  that  of  a  co-operative 
savings  institution,  in  which  each  member  has  like  privi- 
leges and  obligations  with  each  other  member,  according 
to  the  series  and  number  of  shares  held  by  him.  There 
is,  however,  one  marked  difference  between  the  plan  of 
saving  followed  by  these  associations  and  the  general 
method  pursued,  and  that. is,  while  all  savings  are  volun- 
tary in  the  beginning,  after  a  subscriber  begins  saving  by 
the  plan  adopted  by  these  associations,  the  continuance 
of  such  savings  becomes  compulsory  to  a  certain  extent, 
that  is,  to  as  great  an  extent  as  the  infliction  of  penalties 


1 68         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

in  the  shape  of  fines,  and  either  entire  or  partial  forfeiture 
of  the  amounts  previously  paid  in  can  make  them  so,  but 
while  the  law  gives  the  association  the  right  in  its  by-laws 
to  provide  for  absolute  forfeiture,  this  right  is  rarely  ever 
exercised.  Some  of  the  associations  provide  after  notice 
of  thirty  days  payments  may  cease,  and  the  amounts 
already  paid  in,  with  such  interest  as  the  Board  of  Man- 
agers may  allow,  will  be  paid  to  the  withdrawing  sub- 
scriber, after  which  all  penalties  and  forfeitures  cease. 
By  the  ordinary  methods  of  saving  one  can  continue  or 
discontinue  his  savings  as  he  pleases.  Of  course,  if  it 
becomes  desirable  to  discontinue  the  payment  of  the 
monthly  installments  known  as  dues,  it  is  generally  possi- 
ble for  the  subscriber  to  sell  his  right  in  past  savings, 
which  are  represented  by  the  shares  standing  in  his 
name. 

The  method  of  accumulation  of  the  fund  is  this:  The 
association  is  composed  of  subscribers,  to  each  subscriber 
is  issued  such  number  of  shares  as  he  is  willing  to  pledge 
himself  to  pay  for  until  they  obtain  a  given  value,  gen- 
erally $200,  by  the  payment  of  a  monthly  installment  of 
$i  on  each  share.  Obviously  it  would  take,  in  the  absence 
of  interest  on  the  money  so  paid  in,  200  months  to  bring 
these  shares  up  to  that  value,  but  the  earning  capacity  of 
money,  properly  invested,  is  such  that  it  has  been  found 
that,  instead  of  taking  200  months,  it  will  probably  not 
take  more  than  120  months,  or  ten  years,  for  these  shares 
to  reach  their  face  value  of  $200.  In  this  time,  ten  years, 
instead  of  paying  in  $200  per  share,  the  subscriber  has 
only  paid  in  $120,  and  the  $120  so  paid  in  has  earned  the 
additional  $80  to  bring  his  shares  up  to  their  face  value. 

In  order  to  become  a  subscriber  of  such  association  it  is 
necessary  to  enter  into  a  contract  with  the  association  to 
pay  subscriptions  on  a  stated  day  each  month,  or  suffer 
certain  penalties  and  forfeitures. 

The  profit  of  the  subscriber,  either  in  case  he  becomes 


BUILDING  AND  MUTUAL   LOAN  ASSOCIATIONS.       169 

a  borrower  from  the  association  or  otherwise,  is  solely  in 
the  fact  that  at  the  end  of  a  given  time  he  receives  back 
the  money  he  paid  into  the  association,  plus  such  interest 
as  it  may  have  earned  and  his  proportion  of  the  forfeitures 
and  penalties  inflicted  upon  defaulting  subscribers. 

The  holder  of  each  share  is  entitled  to  borrow  from  the 
association  out  of  the*  moneys  which  it  may  have  on  hand 
to  loan,  on  acceptable  real  property,  either  improved  or 
to  be  improved  under  the  direction  of  the  association,  a 
sum  equal  to  the  face  value  of  the  shares  held  by  him, 
but  on  the  further  condition  that  he  must  pay  a  premium, 
generally  not  less  than  50  cents  a  share,  for  securing  such 
loan,  beyond  the  legal  rate  of  interest,  which  he  is  to  pay 
for  the  use  of  the  money  advanced.  Some  of  the  com- 
panies also  permit  a  member  who  has  not  already  bor- 
rowed to  build  or  acquire  property,  to  borrow  for  other 
purposes  than  acquiring  property  at  the  legal  rate  of 
interest,  on  the  deposit  of  his  shares  as  collateral,  to  the 
extent  of  90  per  cent,  of  the  amount  then  paid  in  on  such 
shares.  In  a  prominent  company,  with  which  the  writer  is 
acquainted,  the  members  availed  themselves  of  this  priv- 
ilege to  the  extent  of  $50,000  during  the  depression  of 
1893. 

The  by-laws  of  many  associations  prescribe  that  the 
funds  in  hand  to  be  loaned  shall  at  stated  times  be  put  up 
and  bid  for,  and  the  same  loaned  to  the  person  bidding 
the  highest  rate  of  interest,  and  at  the  same  time  offering 
satisfactory  security,  but  this  plan  is  now  being  quite 
generally  abandoned  in  favor  of  what  is  known  as  the 
"  gross  premium  serial  plan,"  by  which  a  certain  premium 
per  share  is  charged. 

The  theory  and  principle  upon  which  loans  are  made  to 
the  subscribers  are  that  all  the  subscribers  will  not  wish 
to  borrow  at  the  same  time,  and  therefore  that  the  money 
of  those  who  do  not  desire  to  borrow  may  be  loaned  to 
those  who  do. 


I/O         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

Article  V.  of  the  Banking  Laws  of  the  State  of  New 
York  prescribes  that  building  and  mutual  loan  corpora- 
tions may  be  organized  by  not  less  than  nine  persons  for 
the  purposes  before  stated,  by  making,  acknowledging, 
and  riling  a  certificate  of  incorporation  setting  forth : 

1.  The  name  of  the  corporation. 

2.  The  location  of  its  principal  business  office. 

3.  When  its   regular  meetings  shall  be  held,  and  how 
special  meetings  may  be  called. 

4.  What  shall  be  a  quorum  to  transact  business  at  its 
meetings. 

5.  How  members  shall  be  admitted,   and  their  qualifi- 
cations. 

6.  What  officers,  directors,  or  attorneys  of  the  corpora- 
tion there  shall  be,  and  how  and  when  chosen. 

7.  The  duties  of  such  officers,  directors,   or  attorneys, 
and  how  removed  or  suspended  from  office. 

8.  The  names  of  the  persons  who  shall  be  such  officers 
and  directors  for  its  first  year,  and  until  others  are  chosen 
or  appointed  in  their  places. 

9.  The  entrance  fee  of  new  members  and  new  shares. 

10.  The  amount  of  each  share. 

11.  The  monthly  or  weekly  dues  per  share. 

12.  The  redemption  fee  on  shares  on  which  advances 
shall  be  made. 

13.  The  fees  to  be  paid  on  the  transfer  of  shares. 

14.  The   penalties    for   non-payment   of  dues    or   fees, 
or  other  violation  of  the  provisions  of  the  certificate. 

15.  The  manner  of  redemption  of  shares  by  advances 
made  thereon. 

1 6.  The  mortgage  security   to  be  taken    on   such  ad- 
vances, and  how  the  same  may  be  changed. 

17.  The   manner    of    the    transfer    or    withdrawal   of 
shares. 

1 8.  The  manner  of  investing  funds  not  required  for  ad- 
vances on  shares. 


BUILDING  AND  MUTUAL  LOAN  ASSOCIATIONS.       I/I 

19.  The  qualification  of  voters  at  its  meetings  and  the 
mode  of  voting. 

20.  The  ultimate  amount  to  be  paid  to  the  owners  of 
unredeemed  shares. 

21.  The  manner  of  altering  or  amending  the  certificate 
of  incorporation. 

22.  Such  other  provisions  not  inconsistent  with  law  as 
shall  be  necessary  for  the  convenient  and  effective  trans- 
action of  its  business. 

This  certificate  must  be  approved  by  the  Superintendent 
of  Banks,  and  filed  in  the  office  of  the  Clerk  of  the  County 
in  which  the  principal  office  of  the  corporation  is  located. 
A  certified  copy  must  also  be  filed  with  the  Superin- 
tendent of  Banks,  after  which  the  subscribers  thereto  and 
their  successors  shall  become  a  corporation  by  the  name 
specified  in  said  certificate. 

The  directors  may  demand  from  the  members  and 
stockholders  the  sums  of  money  subscribed  for  at  such 
times  and  in  such  installments  as  the  certificate  of  incor- 
poration shall  prescribe,  under  penalty  of  forfeiting  the 
shares  of  stock  subscribed  for  and  all  previous  payments 
made,  if  payment  is  not  made  within  sixty  days  after  per- 
sonal demand  or  notice  published  for  six  successive 
weeks  in  the  newspaper  published  nearest  to  the  principal 
place  of  business  of  the  corporation. 

The  association  may  borrow  money  for  temporary  pur- 
poses not  inconsistent  with  the  objects  of  this  organiza- 
tion, but  no  such  loans  shall  be  of  longer  duration  than 
two  years,  nor  shall  its  indebtedness  for  money  so  bor- 
rowed at  any  one  time  exceed  one  fourth  of  the  aggregate 
amount  of  its  shares  and  parts  of  shares  and  the  income 
actually  paid  in  and  received.  No  loan  shall  be  made  to 
any  member  or  stockholder  exceeding  in  amount  the  par 
value  of  the  capital  stock  subscribed  for  by  said  member. 

Parents  and  guardians  may  hold  stock  for  their  minor 
children  or  wards,  provided  the  cost  of  such  shares  be 


1/2         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

defrayed  from  the  personal  earnings  of  such  children  or 
wards,  or  gifts  from  persons  other  than  their  parents. 

Dividends  from  the  earnings  shall  be  payable  as  pre- 
scribed in  the  articles  of  incorporation. 

"  No  holder  of  redeemed  shares  shall  claim  to  be  exempt 
from  making  the  monthly  or  other  stated  payments  provided 
in  the  certificate  of  incorporation  on  the  ground  that  by  rea- 
son of  losses  or  otherwise  the  corporation  has  continued 
longer  than  was  originally  anticipated,  whereby  the  payments 
made  on  such  shares  may  amount  to  more  than  the  amount 
originally  advanced,  with  legal  interest  thereon  ;  nor  shall  the 
imposition  of  fines  for  non-payment  of  dues  or  fees  or  other 
violation  of  the  certificate  of  incorporation,  nor  the  making  of 
any  monthly  payment  required  by  the  certificate  of  incorpora- 
tion, or  of  any  premium  for  loans  made  to  members,  be 
deemed  a  violation  of  the  provisions  of  any  statute  against 
usury. 

"  All  the  shareholders  of  any  such  corporation  shall  be 
individually  liable  to  the  creditors  to  an  amount  equal  to  the 
amount  of  stock  held  by  them  respectively  for  all  debts  con- 
tracted by  it.  The  directors  or  other  officers  of  every  such 
corporation  shall  be  personally  liable  for  any  fraudulent  use, 
disposition,  or  investment  of  any  moneys  or  property  belong- 
ing to  it,  or  for  any  loss  which  shall  be  incurred  by  any  invest- 
ment made  by  any  such  directors  or  officers,  other  than  such 
as  are  mentioned  in,  and  authorized  by,  this  article  ;  but  no 
director  or  other  officer  shall  be  so  liable  unless  he  authorized, 
sanctioned,  approved  of  or  made  such  fraudulent  use,  disposi- 
tion, or  investment." 

The  shares  held  by  the  members  and  stockholders  of 
every  such  corporation  shall  be  exempt  from  sale  on  exe- 
cution for  debt  to  an  extent  not  exceeding  $600  in  such 
shares  at  their  par  value. 

"  Any  existing  corporation  formed  solely  for  the  purposes 
mentioned  in  this  article,  or  any  of  them,  may,  by  a  vote  of 
the  persons  holding  a  majority  of  the  voting  shares  of  stock 


CO-OPERATIVE  LOAN  ASSOCIATIONS.  1/3 

of  such  corporation  at  any  regular  meeting  after  this  article 
shall  take  effect,  become  entitled  to  the  benefit  of  this  article 
on  complying  with  Section  170  of  this  chaper,  or  such  por- 
tions thereof  as  have  not  been  previously  complied  with." 

The  consolidation  or  merger  of  Building  and  Mutual 
Loan  Associations  and  Co-operative  Loan  Associations 
is  provided  for  by  "  An  Act  to  Amend  the  Banking 
Law,"  which  became  a  law  April  23,  1895.  See  State 
Banks,  page  102.  In  the  case  of  these  associations  the 
act  provides  that  dissenting  shareholders  may  demand 
cancellation  of  their  stock  or  liquidation  of  their  in- 
debtedness, the  value  of  which  stock,  or  the  amount  of 
which  indebtedness  is  to  be  determined  by  three  ap- 
praisers, to  be  appointed  by  the  Supreme  Court  of  the 
district  in  which  the  county  of  domicile  of  the  corpora- 
tion is  located,  upon  application  made  by  such  stock- 
holders upon  eight  days'  notice  to  the  corporation,  within 
sixty  days  after  merger. 

Co-operative  Loan  Associations. 

These  associations  may  be  organized  by  not  less  than 
fifteen  persons. 

The  objects  sought  are  practically  the  same  as  those  of 
Building  and  Mutual  Loan  Associations. 

A  certificate  of  organization  must  be  filed  with  the 
Superintendent  of  Banks  at  Albany,  and  a  copy  with  the 
County  Clerk  of  the  County  where  the  principal  office  of 
such  Company  is  located,  which  certificate  must  be  ap- 
proved by  the  Superintendent  of  Banks  before  the  sub- 
scribers and  their  successors  shall  become  a  corporation 
by  the  name  specified. 

The  officers  of  such  association  shall  be  a  President, 
Vice-President,  Treasurer,  and  Secretary,  all  of  whom 
shall  be  ex-officio  members  of  the  Board  of  Directors, 
which  Board  shall  consist  of  not  less  than  nine  members, 
exclusive  of  ex-officio  members. 


1/4         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

By-laws  shall  be  adopted  prescribing  the  terms  of 
office,  the  duties  and  compensation  of  officers,  the  time 
of  their  election,  and  of  periodical  meetings  of  the  officers 
and  shareholders,  how  special  meetings  may  be  called 
regulating  the  due  conduct  of  the  business  of  the  corpora- 
tion, defining  the  duties  of  its  officers  and  committees, 
the  mode  of  determining  and  declaring  the  withdrawing 
value  of  shares,  and  making  such  other  regulations  in 
regard  to  the  transaction  of  the  business  of  the  corpora- 
tion as  are  not  inconsistent  with  law. 

The  Board  of  Directors  shall  each  year  determine  the 
compensation  of  the  Treasurer  and  Secretary,  and  they 
may  appoint  and  remove  at  pleasure  an  attorney  for  the 
corporation. 

The  capital  stock,  not  to  exceed  one  million  dollars, 
divided  into  shares  of  the  matured  value  of  two  hundred 
dollars  each,  shall  consist  of  the  accumulated  savings  of 
its  members  which  it  holds.  The  total  number  of  out- 
standing shares  at  any  one  time  shall  not  exceed  ten 
thousand.  The  shares  shall  be  issued  in  yearly  or  half 
yearly  series,  and  at  such  times  as  shall  be  prescribed  by 
the  by-laws.  No  shares  of  a  prior  series  shall  be  issued 
after  the  issuing  of  shares  of  a  new  series.  No  person 
shall  hold  more  than  ten  unpledged  or  more  than  twenty 
pledged  shares  in  any  one  series. 

Savings  paid  to  the  corporation  upon  shares  shall  be 
called  dues.  At  or  before  each  stated  monthly  or  semi- 
monthly meeting  of  the  Board  of  Directors,  each  share- 
holder shall  pay  to  the  board  or  a  committee  thereof,  one 
dollar  dues  upon  each  share  of  stock  held  by  him  until 
the  share  reaches  the  value  of  two  hundred  dollars,  or  is 
withdrawn,  cancelled,  or  forfeited.  Payment  of  dues  on 
shares  of  each  series  shall  commence  from  its  issue. 
Fines  may  be  imposed  and  collected,  not  exceeding  10 
per  cent,  for  each  month  in  arrears,  for  every  dollar  of 
dues  or  interest  which  a  shareholder  shall  refuse  or  neglect 


CO-OPERATIVE  LOAN  ASSOCIATIONS.  175 

to  pay  at  the  time  it  is  due.  An  entrance  fee  may  also 
be  charged,  not  exceeding  twenty-five  cents  on  every  share 
of  stock  issued  by  the  corporation. 

Unlike  in  the  case  of  a  building  and  loan  association,  the 
law  prescribes  that  a  member  may  withdraw  the  accumu- 
lations upon  his  share  after  one  month's  written  notice  to 
the  Secretary,  which  withdrawing  shareholder  shall  be 
paid  the  withdrawal  value  of  his  share  as  prescribed  by 
the  by-laws  at  the  last  distribution  of  profits  before  the 
notice  of  withdrawal,  together  with  all  it  has  paid  since 
such  distribution,  and  such  interest  on  the  value  of  the 
shares  at  the  time  of  the  last  distribution,  and  on  the  dues 
thereafter  paid,  as  the  by-laws  shall  determine,  less  any 
fines  unpaid  and  a  proportionate  share  of  any  unadjusted 
loss  ;  but  not  more  than  one  half  of  the  receipts  of  the 
corporation,  and  when  the  corporation  is  indebted  on 
matured  shares,  not  more  than  one  third  of  such  receipts 
shall  be  applicable  to  the  payment  of  withdrawing  share- 
holders. Withdrawing  shareholders  shall  be  paid  in  the 
order  in  which  their  notices  of  withdrawal  were  filed  with 
the  Secretary.  The  board  of  directors  may  in  their  dis- 
cretion, under  rules  made  by  them,  retire  the  unpledged 
shares  of  any  series  at  any  time  after  four  years  from  the 
date  of  their  issue  by  enforcing  withdrawals  of  the  same  ; 
but  the  shareholders  whose  shares  are  to  be  retired  shall 
be  determined  by  lot,  and  they  shall  be  paid  the  full  value 
of  their  shares,  less  all  fines  and  their  proportionate  part 
of  any  adjusted  loss. 

Upon  an  unpledged  share  of  a  given  series  reaching  the 
value  of  two  hundred  dollars,  all  payment  of  dues  thereon 
shall  cease,  and  the  holder  be  paid  out  of  the  funds  of 
the  corporation  $200  therefor,  with  such  rate  of  interest 
as  shall  be  determined  by  the  by-laws  from  the  time  the 
board  of  directors  shall  have  declared  such  shares  to  be 
matured  until  paid  ;  but  at  no  time  shall  more  than  one 
third  of  the  receipts  of  the  corporation  be  applicable  to 


176         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

the  payment  of  matured  shares  without  the  consent  of  the 
board  of  directors,  who  shall  also  determine  the  order 
of  the  payment  of  matured  shares. 

At  each  monthly  stated  meeting,  immediately  following 
the  receipt  of  dues  and  interest,  the  board  of  directors 
shall  offer  to  members  of  the  corporation  desiring  to  bor- 
row, all  accumulations  applicable  to  that  purpose,  in  sums 
of  two  hundred  dollars,  the  value  of  a  matured  share,  or 
a  multiple  thereof,  or  the  fractional  parts  of  one  third  of 
one  half  thereof.  If  more  than  one  member  desires  to 
borrow,  the  right  to  the  loan  shall  be  determined  by  an 
open  bidding  of  a  premium  per  share,  and  the  member 
bidding  the  highest  premium  shall  be  entitled  to  the  loan 
upon  giving  proper  security  ;  and  the  amount  of  the 
premium  paid  shall  be  deducted  from  the  sum  loaned  at 
the  time  of  loaning,  and  the  receipt  thereof  shall  not  be 
deemed  a  violation  of  the  usury  laws.  No  member  can 
borrow  a  larger  sum  than  shall  be  equal  to  the  matured 
value  of  the  shares  held  by  him.  A  borrowing  member, 
for  each  share  or  fractional  part  thereof  borrowed  upon, 
shall,  in  addition  to  the  dues  on  his  shares,  pay  monthly 
interest  on  his  loan  at  the  rate  of  six  per  cent,  per  annum, 
or  such  lower  rate  as  the  by-laws  shall  name,  until  the 
shares  borrowed  upon  reach  the  matured  value  of  two 
hundred  dollars  each,  or  the  loan  is  repaid  ;  and  when 
such  matured  value  is  reached,  the  loan  upon  it  shall  be 
paid  out  of  the  share,  and  the  proper  surrender  and 
acquittances  be  made.  See  last  paragraph  Building  and 
Mutual  Loan  Associations. 

Mortgage  and  Debenture  Companies. 

These  companies  are  of  comparatively  recent  growth 
and  are  a  necessity  of  the  unnaturally  rapid  development 
of  our  Western  agricultural  sections  by  persons  who,  with- 
out the  aid  afforded  by  these  companies,  would  be  unable  to 
retain  their  holdings,  which  often  in  the  first  instance  were 


MORTGAGE  AND  DEBENTURE   COMPANIES.        177 

simply  pre-empted  Government  lands,  the  holders  owning 
little  more  than  the  land  itself,  and  not  having  the  means 
with  which  to  erect  suitable  buildings  thereon  and  to  pur- 
chase the  implements  required  for  its  cultivation.  Settlers 
of  this  class  usually,  in  order  to  procure  capital,  mortgage 
their  lands  as  soon  as  they  have  any  commercial  value, 
which,  of  course,  is  as  soon  as  they  can  produce  anything 
which  can  be  marketed. 

Holders  of  the  mortgages  on  such  lands,  as  a  rule,  reside 
in  the  money  centres  of  our  country,  which  are  mainly  on 
the  Atlantic  seaboard,  and  can  make  no  personal  examina- 
tion of  the  land  on  which  they  loan.  This  work  falls 
within  the  province  of  the  mortgage  companies,  who, 
through  their  agents,  make  examinations  of  the  lands, 
extend  the  loans,  and  then  through  their  representatives, 
principally  in  the  East,  sell  the  mortgages  to  investors. 

The  farming  lands  of  several  Western  States  are  mort- 
gaged to  more  than  half  of  their  appraised  value,  which 
mortgages  have  been  in  no  small  degree  negotiated 
through  mortgage  and  debenture  companies. 

When  properly  conducted,  their  loans  carefully  chosen, 
and  the  company  economically  managed,  the  mortgages 
of  such  companies  certainly  offer  a  fair  investment,  and 
companies  of  this  description  are  of  great  use  in  bringing 
together  the  borrower  and  the  lender  in  a  way  quite 
impossible  without  their  aid. 

Each  company,  as  a  rule,  confines  itself  principally  to  a 
given  area,  frequently  taking  the  name  of  the  State  or 
section  where  its  loans  are  located. 


CHAPTER   IX. 

\ 

Private  Bankers — Brokers — Stock  Brokers — Note  Brokers — Puts  and  Calls. 

Private  Bankers. — In  an  estimate  of  the  financial 
strength  of  a  great  city,  or  a  country,  few  of  us,  our  minds 
filled  with  the  enormous  aggregation  of  capital  of  banks, 
take  into  consideration  what  an  important  element  is  the 
private  banker,  who,  practically  unrestricted  as  to  his  deal- 
ings, investments,  and  ventures,  save  by  the  consideration 
of  receiving  good  security  for  his  advances  and  avoiding 
placing  his  own  or  his  clients'  funds  where  they  may  be 
insecure,  or  regained  only  at  expense  and  loss  of  interest, 
undertakes  and  promotes  enterprises  which  National  and 
State  banks,  by  law,  are  prohibited  from  doing.  Still  less 
do  we  consider  that  while  the  aggregate  capital  and  sur- 
plus of  the  National  and  State  banks  of  New  York  City, 
clearing  through  the  New  York  Clearing  House,  for 
instance,  does  not  exceed  perhaps  $134,000,000,  that 
of  the  private  bankers  more  numerous  't  is  true,  more 
than  trebles  this  amount,  and  while  $5,000,000  is  the 
largest  capital  of  any  of  our  banks,  there  are  certainly 
half  a  dozen  or  more  private  banking  firms  in  the  city  of 
New  York  whose  individual  capital  is  not  less  than 
$10,000,000. 

Private  bankers,  like  banks,  receive  money  from  one 
person  and  loan  it  to  another,  sometimes  paying  interest 
on  the  money  which  they  receive,  and  always  charging 
interest  on  that  which  they  loan  ;  the  difference  between 
the  two  being  their  profit. 

178 


PRIVATE  BANKERS. 

By  far  the  larger  portion  of  their  business  is  in  the 
furtherance  of  new  enterprises,  and  the  reorganization  of 
old,  the  forming  of  companies,  the  consolidation  of  already 
existing  corporations  or  businesses,  the  selling  and  buying 
of  exchange,  and  the  salp  and  issuance  of  letters  of  credit, 
certificates  of  deposit,  etc. 

Private  bankers  in  the  United  States  have  all  the 
privileges  granted  to  State  banks  generally,  but  are  not 
subject  to  the  same  restrictions  excepting  when  they  issue 
circulating  notes,  which  they  can  do  under  the  laws  of 
most  States,  then  they  become  subject  to  the  same  restric- 
tions and  limitations  in  that  respect  as  State  banks  ;  but 
while  they  possess  that  right  it  is  rendered  of  no  practical 
value  to  them  by  the  National  tax  of  ten  per  cent,  on  the 
circulating  notes  of  other  than  National  banks. 

In  England  at  present,  and  in  this  country  up  to  the 
imposition  of  the  National  tax  above  alluded  to,  the 
issuance  of  circulating  notes  was  a  source  of  considerable 
revenue. 

The  business  of  banking  and  promoting,  now  being 
generally  carried  on  by  the  same  firms,  is  usually  so  inti- 
mately connected  as  to  be  almost  inseparable  ;  most  of 
the  larger  banking  houses  deriving  the  greater  part  of  their 
incomes  from  the  promotion  of  various  enterprises,  by 
which  is  meant  the  furnishing  to  those  enterprises  in  ex- 
change for  its  securities  a  sufficient  amount  of  money  to 
enable  them  to  begin  and  continue  their  operations. 

The  reorganization  of  various  properties  also  furnishes 
a  large  field  of  usefulness,  and  offers  very  handsome 
profits  and  commissions. 

They  enter  into  contracts  with  companies,  by  which  they 
agree  to  advance  them  money  to  a  given  amount,  receiv- 
ing for  such  advances  the  bonds  and  stock  of  such  com- 
panies at  a  given  price.  These  they  dispose  of  to  their 
clients  and  customers.  On  such  transactions  they  make 
two  profits,  one  being  the  interest  on  the  money  loaned, 


180         PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

and  the  other  the  advance  in  price  on  the  securities,  or  a 
commission  on  the  sale. 

To  enumerate  all  the  sources  of  income  of  private 
bankers  is  to  name  the  various  businesses  of  the  country, 
in  all  of  which  they  are  more  or  less  directly  interested, 
and  which  they  assist  and  are  assisting  daily. 

Perhaps  no  great  industry  owes  more  to  their  generous 
assistance  than  do  the  railroads,  whose  securities  are 
largely  owned  and  almost  exclusively  placed  by  them  ; 
and  when  it  is  borne  in  mind  that  the  railroad  interests  of 
the  United  States  represent  some  nine  billion  of  dollars, 
or  nearly  one  fifth  of  the  whole  wealth  of  the  country,  and 
but  for  their  existence  vast  tracts  which  now  have  great 
value  would  be  comparatively  valueness,  it  may  be  seen 
to  what  an  extent  the  development  of  the  West  in  par- 
ticular is  due  to  the  foresight  and  enterprise  of  the  private 
banker. 

But  vast  interests  and  values  are  perhaps  quite  as  much 
affected  by  the  maintenance  of  existing  enterprises  as  by 
the  creation  or  extension  of  new  ones,  and  oftentimes  the 
reorganization  of  a  railroad  is  as  important  to  the  interests 
of  the  section  which  it  traverses  as  the  building  of  a  new 
road  would  be  to  another  section. 

The.  consolidation  of  properties  either  friendly  or  an- 
tagonistic, for  the  purpose  of  eliminating  competition, 
reducing  expenses,  or  increasing  earnings,  is  a  source  of 
almost  constant  employment  for  the  larger  houses. 

In  the  organization  of  a  company  the  method  of  pro- 
cedure is  something  like  this  :  We  will  take  a  railroad 
company,  for  instance.  Certain  persons  desiring  to  build 
a  road  from  one  point  to  another,  after  making  inquiries 
as  to  the  probable  business  which  can  be  secured,  make 
estimates  as  to  the  cost  of  the  right  of  way — in  many 
instances  a  large  portion  of  which  can  be  secured  without 
cost,  the  land  being  given  to  the  company  either  by  the 
persons  whose  lands  will  be  traversed,  in  the  hope  of 


PRIVATE  BANKERS.  l8l 

making  the  remainder  more  valuable,  or  grants  are  made 
by  the  State,  county,  and  in  many  instances  by  the 
National  government,  which  has  given  millions  of  acres 
to  the  transcontinental  lines  ;  plans  are  then  submitted  to 
some  railroad  contractor,  who  makes  an  estimate  as  to  the 
cost  of  construction  of  such  a  road  as  is  desired,  a  rough 
survey  having  first  been  made.  These  plans  together  with 
the  contractor's  estimates  are  all  submitted  to  the  bank- 
ing house,  which  if  it  agrees  to  take  up  the  matter 
perfects  the  organization  of  the  company,  by  procuring 
the  passage  of  an  act  to  that  effect  by  the  State  or  States 
in  which  it  is  located,  and  after  the  filing  of  its  certificate 
of  organization,  the  payment  of  such  fees  and  taxes  as  are 
necessary  to  complete  such  organization,  proceeds  through 
the  directors  and  stockholders  to  issue  its  mortgage 
bonds  and  stock,  of  which  it  retains  or  subsequently 
receives  a  certain  portion  as  security  for  advances  which 
they  agree  to  and  do  make.  These  securities  they  then 
place  among  their  customers.  The  agreement  frequently 
is  that  they  will  only  supply  the  company  with  such  sums 
as  they  can  realize  from  a  sale  of  its  securities,  for  which 
sale  they  charge  a  commission.  The  securities  issued  by 
the  company  in  excess  of  the  amount  necessary  to  procure 
these  advances  are  retained  by  it  in  its  treasury. 

In  the  reorganization  of  companies  the  usual  method 
is  for  the  security  holders  to  deposit  with  some  trust 
company,  usually  named  by  the  bankers  effecting  the  re- 
organization, their  securities.  After  a  sufficient  propor- 
tion have  been  deposited  to  insure  the  success  of  the 
reorganization,  and  after  the  completion  of  the  necessary 
preliminaries,  the  depositors  receive  securities  of  the  new 
company  at  the  rate  agreed  upon  in  the  reorganization 
agreement. 

When  a  property  is  put  in  the  hands  of  a  receiver, 
a  reorganization  is  about  the  only  thing  to  be  done,  as  the 
company  is  bound  to  be  reorganized  either  by  the  pur- 


1 82         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

chaser  or  the  creditors,  generally  the  bondholders.  These 
reorganizations  are  usually  very  profitable  to  the  bankers 
consummating  them. 

Brokers. — There  are  so  many  kinds  of  brokers,  in  fact, 
as  many  kinds  as  there  are  commodities  or  paper  repre- 
senting values  to  be  sold  and  purchased,  that  it  is  impos- 
sible to  speak  of  them  all.  Our  remarks  will  therefore  be 
confined  to  Stock  Brokers  and  Brokers  of  Commercial 
Paper,  commonly  known  as  Note  Brokers. 

Stock  Brokers. — The  principal  places  of  business  of  the 
stock  broker  in  New  York  is  the  Stock  Exchange,  and 
the  Consolidated  Exchange,  where  most  active  stocks  are 
dealt  in,  but  in  addition  to  these  stock  brokers,  members 
of  one  or  both  exchanges,  there  are  a  large  number  who 
belong  to  no  exchange,  and  who  deal  largely  in  street  rail- 
way and  gas  stocks,  and  State,  municipal,  and  county 
bonds  and  warrants,  called  "  Investment  Securities.'* 
The  number  of  brokers  in  New  York  engaged  in  the  sale 
of  securities  is  certainly  several  thousand. 

While  most  of  the  banking  houses  in  New  York  do 
what  is  known  as  a  "  banking  and  brokerage  business," 
there  are  a  great  many  brokers  whose  business  is  solely 
confined  to  the  buying  and  selling  of  stocks  and  bonds ; 
and  some  trade  almost  wholly  in  the  securities  of  certain 
properties. 

A  membership  in  one  or  more  of  the  principal  ex- 
changes of  the  country  is  now  considered  a  pre-requisite 
to  success,  and  there  are  comparatively  few  of  the  chief 
houses  who  do  not  have  memberships  in  several.  In 
New  York  a  membership  in  the  "  New  York  Stock  Ex- 
change "  is  indispensable  to  the  carrying  on  of  a  large 
stock-brokerage  business,  although  some  of  the  brokers 
on  the  "  Consolidated  Stock  and  Petroleum  Exchange  " 
do  considerable  business. 

Stock  brokers  rise  in  various  gradations  from  the  "  curb- 
stone "  broker  who  buys  and  sells  stock  on  the  curb-stone, 


BROKERS.  183 

the  broker  who  holds  forth  in  some  of  the  rooms  known 
by  various  names,  but  better  known  to  the  public  as 
"  bucket "  shops,  until  you  finally  come  to  the  opulent 
Stock  Exchange  man  who  drives  to  his  office  in  his  car- 
riage, and  buys  and  sells  stocks  by  the  thousand  or  ten 
thousand  shares. 

That  New  York  is  not  suffering  from  a  dearth  of  stock 
brokers  may  be  inferred  from  the  fact  that  the  Stock 
Exchange  furnishes  noo,  the  Consolidated  as  many  more, 
— and  they  seem,  during  a  busy  market,  literally  to  spring 
out  of  the  curb  of  New  Street. 

There  can  scarcely  be  less  than  six  or  seven  thousand 
men  engaged  daily  in  New  York  in  various  ways  in  the 
increasing  or  decreasing  of  the  prices  of  various  stocks  and 
bonds,  especially  if  we  include  the  brokers  who,  belonging 
to  no  exchange,  make  a  specialty  of  State,  city,  and  county 
bonds,  which  are  rarely,  if  ever,  dealt  in  on  the  exchanges. 

Many  of  the  commission  houses,  brokers  who,  for  a  com- 
mission, buy  and  sell  for  others,  make  it  a  part  of  their 
articles  of  partnership  that  the  members  of  their  firm  shall 
not  speculate  on  either  their  individual  or  firm  account. 
There  are  many  good  reasons  for  this.  The  first  is  that  the 
firm  may  not  be  injured  by  the  speculation  of  its  mem- 
bers, and  find  itself  suddenly  embarrassed  by  losses  of 
which  it  had  no  knowledge  ;  and  the  second  is  that  mem- 
bers of  said  firm  shall  be  in  a  position  to  advise  their 
customers  disinterestedly,  which,  of  course,  they  might 
not  and  probably  would  not  be  if  they  were  themselves 
large  buyers  or  sellers  of  stocks,  the  price  of  which  they 
desired  to  see  increased  or  decreased ;  and,  thirdly,  this 
rule  being  known,  the  customers  would  have  greater  faith 
in  and  reliance  upon  the  advice  given  them.  For  the 
same  reasons,  and  the  additional  one  that  speculation  at 
times  offers  great  temptation  to  dishonesty  and  the 
betrayal  of  trusts,  the  clerks  of  many  houses  are  prohib- 
ited from  speculating. 


1 84         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

A  brief  description  of  the  way  in  which  business  is 
done  in  a  well  conducted  office  perhaps  would  not  be  out 
of  place.  We  will  confine  it  to  the  office  of  a  member  of 
the  Stock  Exchange.  The  first  thing  in  the  morning,  is 
the  opening  of  the  mail  to  see  what  orders  have  been  sent 
in.  Such  of  these  as  are  not  to  be  attended  to  by  the 
members  of  the  firm  are  assigned  to  other  brokers.  The 
cashier  reports  the  condition  of  the  firm's  finances — bal- 
ances in  banks,  and  what  loans,  if  any,  are  needed.  Nego- 
tiations often  are  had  simply  by  telephone  message,  and 
the  loan  arranged,  it  being  understood,  of  course,  that 
proper  security  will  be  deposited  to  cover  it.  The  open- 
ing of  the  Exchange  at  ten  o'clock  finds  all  brokers  with 
any  business  to  transact  on  the  floor,  and  with  the  excep- 
tion of  a  short  interval  for  lunch,  although  many  brokers 
do  not  allow  themselves  even  this  respite,  they  usually 
remain  there  till  three  o'clock,  when  business  on  the  floor 
is  over  for  the  day.  From  ten  to  three,  however,  the 
broker  has  been  in  frequent  communication,  by  messenger 
and  telephone,  with  his  office.  His  duties  on  the  floor  of 
the  exchange,  while  described  at  greater  length  in  the 
article  on  the  New  York  Stock  Exchange,  are,  briefly,  to 
execute  the  orders  of  his  customers. 

The  charge  made  for  the  buying  or  selling  of  a  stock  is 
one  eighth  of  one  per  cent,  of  the  face  value  of  such  stock. 
All  the  shares  on  the  Stock  Exchange,  with  two  excep- 
tions, being  of  the  face  value  of  one  hundred  dollars  a 
share,  and  these  two  are  fifty  dollars  a  share,  one  hundred 
shares  of  one  hundred  dollars  per  share  is  the  smallest 
quantity  of  stock  bought  or  sold  on  the  Stock  Exchange, 
and  in  the  case  of  the  exceptions  just  mentioned  two 
shares  of  fifty  dollars  each  are  counted  as  one,  so  that  not 
less  than  two  hundred  shares  of  these  stocks  are  dealt  in. 
This  represents  a  par  value  of  ten  thousand  dollars,  one 
eighth  of  one  per  cent,  of  which  would  be  $12.50.  This 
is  the  price  charged  persons  not  members  of  the  Ex- 


BROKERS.  185 

change,  but  one  member  may  do  business  for  another 
member  at  as  low  a  rate  as  $2  per  hundred  shares.  The 
penalty  for  the  violation  of  these  rules  is  fine,  suspension, 
or  expulsion  from  the  Exchange,  as  the  Governing  Com- 
mittee may  elect. 

In  most  of  the  larger  offices  there  are  great  blackboards 
with  the  names  of  all  the  principal  stocks,  cotton,  wheat, 
lard,  etc.,  near  which  are  one  or  more  tickers  from  which 
the  quotations  are  taken  and  written  on  the  board  with 
great  rapidity,  this  of  itself  occupying  the  time  of  one 
and  sometimes  more  clerks.  Standing  and  seated  around 
the  room,  intently  watching  the  blackboard,  are  the  cus- 
tomers of  the  firm.  Many  of  them  have  pads  in  their 
hands,  on  which  to  write  their  orders,  which  are  handed 
to  clerks,  and  by  them  checked  and  handed  to  the  tele- 
phone clerk,  telegraph  operators,  or  messengers,  as  the  case 
may  be,  by  whom  they  are  immediately  sent  or  delivered. 

After  the  Exchange  business  is  over  the  brokers  return 
to  their  offices,  and  the  business  of  the  day  is  written  up, 
the  correspondence  attended  to,  etc. 

Some  of  the  principal  houses  while  having  as  many  as 
three  or  four  Stock  Exchange  members,  do  a  large  share 
of  their  buying  and  selling  through  other  brokers,  to  con- 
ceal their  identity  from  their  fellow-brokers,  a  knowledge 
of  which  might  tend  to  injure  their  interests. 

Quite  a  number  of  brokers  are  known  as  "  Specialists." 
They  devote  their  time  to  one  particular  stock,  and  can 
always  be  found  at  the  part  of  the  floor  where  that  stock 
is  traded  in.  These  men,  however,  do  most  of  their  busi- 
ness for  other  brokers,  and  are  called  "  $2' Brokers." 

A  very  large  proportion  of  the  buying  and  selling  of 
stock  is  done  on  margin,  and  a  comparatively  small  per- 
centage of  outright  purchases  are  made.  Some  brokers 
require  a  larger  margin  than  others,  and  all  brokers  require 
heavier  margins  on  some  stocks  than  on  others,  while 
there  are  stocks  which  no  broker  will  buy  on  margin. 


1 86         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

The  amount  of  margin  required  is  dependent  not  alone 
on  the  character  of  the  stock,  but  also  on  the  condition 
of  the  money  market,  and  all  brokers  reserve  to  them- 
selves the  right  to  call  for  more  margin. 

As  a  rule,  any  of  the  active  stocks  which  are  fairly 
steady  can  be  bought  on  a  ten  per  cent,  margin.  That  is, 
by  depositing  one  thousand  dollars  with  your  broker  you 
can  buy  one  hundred  shares  of  stock.  In  speculating  on 
margin  it  should  be  remembered  that  while  the  smaller  the 
percentage  of  margin  the  greater  the  number  of  shares 
which  can  be  purchased  for  a  given  sum,  yet,  in  case  of 
the  market  going  against  the  speculator,  the  sooner  the 
margin  becomes  exhausted,  before  which  event  he  has 
either  to  put  up  more  margin  or  lose  what  he  has  already 
deposited,  whereas  the  same  amount  of  money  represent- 
ing a  larger  margin  on  a  smaller  purchase  would  have 
more  than  covered  the  fall,  and  a  later  recovery  of  the 
price  of  the  stock  may  leave  him  a  profit. 

Another  matter  for  a  speculator  to  consider  is  the  in- 
terest charge  made  by  the  broker,  in  purchases  on  mar- 
gins, the  usual  charge  being  five  per  cent.,  and,  of  course, 
if  your  money  is  earning  less  it  is  evidently  to  your  advan- 
tage not  to  borrow  at  a  higher  rate  than  your  own  money 
is  earning.  The  broker  charges  the  customer  interest  on 
the  difference  between  the  margin  deposited  and  the 
amount  it  takes  to  buy  the  stock  outright.  Thus,  if  on 
a  purchase  of  $10,000  of  stock  selling  at  par  $1000  is  de- 
posited as  margin,  $9000  more  is  necessary  to  complete 
the  purchase  ;  this  the  broker  either  furnishes  or  becomes 
liable  for,  holding  the  stock  as  security,  and  charging  his 
customer  interest  on  the  $9000  until  the  stock  is  either  all 
paid  for  or  again  sold  ;  and  while  this  amounts  to  only  a 
little  over  $1.30  per  day,  we  must  not  forget  that  if  the 
stock  is  held  for  any  length  of  time  it  takes  quite  a  sub- 
stantial slice  out  of  the  profits,  if  it  does  not  entirely 
absorb  them. 


BROKERS.  IS/ 

But  a  small  proportion  of  the  purchases  on  the  Ex- 
change are  made  for  investment,  most  being  made  for  a 
quick  sale,  or  "  turn  "  as  it  is  called,  the  purchaser  or  seller 
intending  to  buy  or  sell  as  soon  as  he  can  make  a  profit 
by  doing  so  ;  the  broker  in  the  event  of  a  profit  paying 
him  the  difference  between  the  price  at  which  he  buys  and 
that  at  which  he  sells,  less  his  commissions  and  interest 
charges  ;  or  in  case  of  a  loss,  applying  the  customer's 
margin  to  the  payment  of  such  loss,  the  broker's  commis- 
sions and  interest  charges.  Should  the  commissions  and 
interest  exceed  the  margin  deposited,  then  the  client  has 
to  make  good  the  deficiency. 

Where  stocks  are  bought  outright  and  paid  for,  they 
are  delivered  to  the  purchaser,  or  held  by  the  broker  for 
him,  subject  to  the  owner's  order. 

Brokers'  offices  generally  have  telegraph  and  telephone 
facilities,  tickers,  and  every  means  of  obtaining  immediate 
information  in  regard  to  the  state  of  the  crops,  the  finances 
of  the  country,  and  of  the  world,  and  everything  else  that 
may  have  an  influence  on  the  stock  market,  and  there  is 
scarcely  a  better  informed  man  as  to  the  material  condi- 
tion of  the  different  parts  of  the  country  than  the  broker, 
whose  success  in  business  is  largely  due  to  the  correctness 
of  the  advice  he  gives  his  clients. 

Conditions  and  circumstances  which  influence  the  price 
of  stocks  are  so  numerous  as  to  defy  exhaustive  state- 
ment, but  a  few  of  the  most  important  will  be  given. 

First,  the  condition  of  the  property ;  next,  the  condi- 
tion of  the  country  from  which  the  company  draws  its 
business,  whether  it  is  such  as  to  warrant  a  continuation 
of  the  present  condition  of  affairs,  and  in  that  connection, 
of  course,  must  be  considered  the  yield  of  the  section, 
whether  it  be  an  agricultural,  mining,  or  lumber  section. 
Next,  the  management  of  the  company,  the  ratio  of  its 
earnings  to  expenses,  the  presence  of  competitors,  and,  in 
fact,  everything  that  might  tend  to  make  it  a  more  profit- 


1 88         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

able  or  a  less  profitable  investment.  The  general  condi- 
tion of  the  money  market  must  be  considered  carefully, 
and  especially  in  the  case  of  new  companies,  or  those  re- 
quiring assistance,  to  be  procured  by  the  borrowing  of 
money  upon  their  securities  ;  for  when  the  money  market 
is  easy  they  can  place  their  securities  at  a  better  price 
than  if  it  is  tight,  but  they  must  in  any  event,  in  the  case 
of  railroads,  have  the  money  to  build  their  tracks  or  ex- 
tend their  operations.  On  a  tight  market  they  have  to 
sell  more  stock  to  secure  the  same  amount  of  money  than 
in  an  easy  market,  or  incur  a  greater  obligation,  as  each 
share,  no  matter  what  price  it  sells  at,  is  an  obligation  of 
the  company  for  the  amount  written  on  its  face.  Another 
consideration  is  the  class  of  persons  by  whom  the  larger 
part  of  the  stock  is  held,  whether  they  are  persons  who 
would  on  a  slight  "  scare  "  have  to  relinquish  their  "  hold- 
ings," as  the  stock  would  necessarily  decline  in  price 
under  heavy  offerings. 

In  the  case  of  companies  requiring  no  such  assistance, 
where  the  stock  is  bought  for  investment,  and  the  prop- 
erty is  well  known  to  be  a  "  dividend  payer/'  the  condi- 
tion of  the  money  market  is  of  less  consequence,  as  the 
tightness  of  money  will  not  to  the  same  degree  affect  the 
earning  capacity  of  the  company. 

Consolidation  of  properties  nearly  always  tends  to  in- 
crease the  price  of  their  securities,  unless  there  is  a  dis- 
proportionate issue  of  securities,  because  it  is  assumed 
that  competition  is  thereby  largely  eliminated,  expenses 
reduced,  rates  raised,  and  net  earnings  increased. 

Traffic  agreements,  which  are  contracts  entered  into  by 
two  or  more  railroads  drawing  their  business  from  the 
same  section  or  sections,  by  which  they  agree  upon  a 
uniform  rate  for  given  services,  and  a  certain  apportion- 
ment of  the  business,  is  in  effect  a  consolidation  to  a  cer- 
tain extent,  and  always  tends  to  increase  the  price  of  the 
stock  of  the  companies  parties  to  it.  These  agreements 


BROKERS.  189 

have  become  an  absolute  necessity  in  many  cases,  to 
avoid  bankruptcy  of  the  roads  entering  into  them,  com- 
petition having  become  so  fierce  that  in  many  instances 
they  were  doing  business  at  absolutely  ruinous  rates,  and 
a  continuation  of  such  competition  must  result  in  the 
ruin  of  many  of  the  parties  concerned. 

Rumors  that  certain  companies  will  show  increased 
earnings  or  decreased  earnings,  that  they  will  fail  to 
declare  dividends  on  certain  issues  of  stock,  or  that  they 
will  declare  larger  dividends,  that  they  will  fail  to  pay 
coupons  falling  due  on  certain  dates,  and,  in  fact,  any- 
thing that  will  have  a  tendency  to  increase  or  decrease 
the  price  of  its  securities,  are  diligently  circulated  for  the 
purpose  of  affecting  the  market ;  also  stories  as  to  the 
solvency  of  known  large  holders  of  its  stocks  ;  and  while 
the  law  has  done  its  utmost  to  punish  the  circulating 
false  reports,  it  cannot  keep  foolish  people  from  becoming 
frightened  or  over-sanguine,  as  the  case  may  be;  and 
many  have  been  the  failures  caused  by  the  circulation 
and  the  heeding  of  such  rumors  or  "  tips,"  as  they  are 
called,  many  people  for  the  time  apparently  forgetting 
that  the  tips  which  they  are  happy  in  possessing  have 
been  purposely  given  to  them  with  the  object  of  inducing 
them  to  do  something  to  the  advantage  of  others.  For 
instance,  nothing  could  be  more  obviously  to  the  advan- 
tage of  a  person  "  short "  of  a  particular  stock,  and  who 
naturally  wishes  to  buy  it  at  the  lowest  price,  than  the 
circulation  of  a  report  among  the  holders  of  that  stock, 
that  the  receipts  of  the  company  showed  a  falling  off,  or 
that  a  competitor's  business  had  greatly  increased,  or  that 
it  had  received  concessions  prejudicial  to  the  company 
whose  stock  he  was  short  of ;  and  it  is  a  very  easy  matter 
to  intimate  or  insinuate  this  to  some  friend  of  the  holders, 
who  in  repeating  the  same  simply  furthers  the  plans  of 
his  friend's  enemy. 

The  price  of  stocks  is  further  influenced  by  the  forma- 


IQO         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

tion  of  "pools,"  in  which  a  number  of  persons  "pool'' 
their  interests,  join  together,  for  the  purpose  of  buying 
or  selling,  and  increasing  or  decreasing,  the  price  of  one 
or  more  stocks.  When  the  object  is  to  increase  the  price 
of  a  stock,  they  are  called  "  bull  pools,"  and  when  the 
object  is  to  decrease  the  price  "  bear  pools."  Naturally, 
only  persons  having  large  holdings  will  join  in  a  bull 
pool,  and  those  short  of,  or  having  no,  or  comparatively 
insignificant,  holdings,  in  a  bear  pool. 

The  method  of  operation  depends  largely  upon  the 
stock  and  whether  the  pool  is  a  bull  or  a  bear  pool.  If  a 
bull  pool,  as  much  stock  as  can  be  is  purchased  for  future 
delivery.  The  sellers  of  this  stock  generally  do  not  have 
the  amount  sold,  but  expect  to  be  able  to  purchase  the 
same  before  the  date  of  delivery  at  a  lower  price  than  the 
one  at  which  they  sold  it ;  a  still  hunt  is  then  made  by 
the  bulls  and  as  much  stock  as  possible  bought,  still  for 
future  delivery,  if  possible.  The  pool  now  begins  to  buy 
up  the  stock  as  rapidly  as  it  is  offered  on  the  market,  the 
stock  becomes  scarce  and  the  price  advances,  bids  are 
made  in  excess  of  the  amount  offered,  and  the  sellers 
who  sold  stock  which  they  did  not  and  do  not  possess, 
"  the  shorts,"  now  come  in  to  buy,  or  "  to  cover,"  as  it  is 
technically  termed,  but  discover  that  there  is  very  little 
or  no  stock  to  be  had,  in  which  case  they  have  either  to 
buy  what  little  there  is  to  be  had,  sending  the  market 
still  higher,  or  pay  the  purchasers,  "  the  bulls,"  the  differ- 
ence between  the  price  at  which  they  agreed  to  deliver 
and  the  price  of  the  stock  in  the  market.  The  success  of 
a  bull  pool  is  dependent  upon  the  ability  of  the  pool  to 
take  all  or  a  very  large  portion  of  the  stock  offered,  upon 
the  condition  of  the  property  during  the  operation  of  the 
pool,  and  to  put  the  sellers,  or  shorts,  in  a  position 
where  they  are  compelled  to  purchase  from  the  pool  at 
practically  the  price  it  chooses  to  dictate,  or  at  any  rate 
at  a  price  which  will  leave  the  bulls  a  profit  after  all  their 


BROKERS.  19! 

holdings  have  been  disposed  of.  These  pools  are  seldom 
formed  for  other  than  speculative  purposes,  and  seldom 
have  the  money  to  buy  all  the  stock  for  which  they  con- 
tract outright.  They  generally  operate  with  a  stock  of 
medium  issue,  rather  than  one  of  either  very  large  or  very 
small  issue,  as  in  one  case  the  stock  would  probably  be 
too  scattered  and  it  would  require  too  much  money,  while 
in  the  other  their  design,  on  account  of  the  limited  issue, 
would  become  apparent  at  an  early  stage,  and  their  object 
defeated. 

A  pool  is  generally  managed  by  one  of  its  members, 
who  has  absolute  power  over  the  holdings  of  the  others, 
which  are  pooled  and  under  his  control.  As  a  complete 
record  is  kept  of  all  bonds  and  stocks  of  every  corpora- 
tion on  its  books,  and  while,  of  course,  the  entries  of 
transfer  do  not  always  show  the  real  owners,  still  a  thor- 
oughly posted  operator  can  approximately  determine  what 
portion  of  its  securities  are  held  for  investment  and  what 
are  being  actively  dealt  in  on  the  exchange,  and  for  ordi- 
nary purposes  only  the  latter  portion  need  be  considered. 

Both  the  bulls  and  the  shorts  will  do  whatever  they  can 
to  influence  the  market  in  their  respective  favors. 

A  bear  pool  is  formed  and  controlled  in  the  same  man- 
ner, usually  by  persons  short  of  a  particular  stock,  who 
sell  stocks,  not  in  their  possession,  for  future  delivery  and 
by  their  constant  offerings  to  sell,  seek  to  reduce  the  price 
so  that  they  may  be  enabled  to  buy  at  a  lower  price  than 
the  price  at  which  the  stock  has  been  sold.  Inasmuch  as 
they  have  to  keep  selling  to  depress  the  market  while  they 
are  buying  to  fill  their  maturing  contracts,  as  it  would 
never  do  to  have  all  the  contracts  mature  at  the  same 
time,  it  requires  most  adroit  management,  as  they  must, 
in  order  to  be  successful,  sell  on  the  market  which  they 
have  themselves  lowered,  and  are  compelled  to  keep  on 
hand  a  much  larger  amount  than  they  buy  in  order  to 
make  the  pool  a  success. 


192         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

Note  Brokers. 

This  is  the  name  usually  given  to  men  whose  business 
is  procuring  the  discount  of  commercial  paper,  notes. 
For  various  reasons  there  are  comparatively  few  men 
engaged  in  this  department  of  finance  as  compared  with 
the  other  departments  ;  and  their  dealings  are  largely  re- 
stricted to  what  are  known  as  outside  borrowers,  borrow- 
ers residing  outside  of  the  place  where  the  loan  is  sought, 
or  who  desire  accommodation  from  other  than  their  usual 
banks  or  lenders,  because  most  business  men  whose  credit 
is  good  can  nearly  always  secure  all  the  money  they  need 
from  the  different  banks  in  which  they  keep  their  ac- 
counts, and  it  is  only  when  a  man  wants  to  go  beyond 
this  that  he  puts  his  paper  in  the  hands  of  brokers,  who 
usually  simply  procure  its  discount  by  some  one  else,  but 
sometimes  they  buy  the  paper  themselves,  and  either  hold 
it  or  re-discount  it  at  a  lower  rate. 

As  a  rule,  however,  they  are  simply  middlemen  between 
the  borrowers  and  the  lenders,  and  receive  a  certain  com- 
mission from  the  borrower  for  procuring  the  discount. 

People  who  have  no  regular  line  of  accommodation  at 
one  or  more  banks,  or  who  have  exhausted  that  line  and 
wish  to  place  their  notes  somewhere  else,  should  consult 
the  note  broker. 

Puts  and  Calls. 

These  words  are  so  technical  in  their  meaning  as  to  re- 
quire special  explanation,  which  is  best  given  by  a  state- 
ment of  the  method  by  which  this  business  is  transacted. 
Thus  :  A  sells  his  agreement  to  B  for  a  certain  sum  to 
"  put  "  to  him  at  a  given  day  at  the  price  named  in  such 
agreement  a  stated  number  of  shares  of  a  particular  stock, 
giving  B  the  privilege  of  calling  for  the  delivery  at  the 
time  and  price  agreed  upon. 

If  the  stock  in  the  meantime  goes  down  so  that  A  can 
purchase  the  same  for  a  less  price  than  the  price  at  which 


BROKERS. 


193 


he  agreed  to  deliver  it,  B  either  pays  A  the  difference  be- 
tween the  price  at  which  the  stock  shall  be  delivered  and 
the  price  at  which  the  same  can  be  purchased  in  the 
market  or  receives  the  stock  and  pays  therefor  the  price 
agreed  upon.  In  the  event  of  the  stock  going  up,  A 
either  delivers  to  B  the  stock  at  the  agreed  time  or  price 
or  pays  to  B  the  difference  between  the  price  at  which  he 

agreed  to  deliver  the  stock  and  its  market  price. 
13 


CHAPTER  X. 

Exchanges — New  York  Stock  Exchange. 

Exchanges. — Exchanges  are  meeting-places  for  per- 
sons engaged  in  the  buying  and  selling  or  exchanging  of 
commodities  or  values,  or  the  titles  to  such  commodities 
or  values. 

The  exchanges  of  the  present  day  may  differ  in  degree 
but  not  in  kind  from  the  guilds  of  the  Saxons,  and  the 
meeting-places  of  the  early  merchants.  Their  growth  has 
been  so  gradual  and  imperceptible,  keeping  pace  with 
commerce,  but  never  outstripping  it,  as  to  have  occasioned 
but  little  comment  historically  ;  and  while  we  are  in- 
formed that  they  were  a  well  established  part  of  the 
commercial  life  of  the  Florentine  period,  and  gradually 
crept  northward  as  the  centre  of  commerce  changed  from 
Southern  to  Western  Europe,  still  in  all  the  essentials 
they  existed,  so  soon  as  a  large  number  of  persons  met 
with  any  regularity  at  a  specified  place  to  exchange  their 
goods. 

To  the  merchant  or  broker  the  exchange  occupies  in 
one  sense  the  same  relation  as  the  merchant  or  distributing 
agent  does  to  the  producer  and  consumer.  It  is  the  me- 
dium through  which  he  is  brought  in  contact  with  those 
who  desire  to  sell,  and  those  who  wish  to  buy,  and  he  can 
consequently  either  sell  or  buy  as  he  wishes.  The  ex- 
change saves  him  the  trouble  and  loss  of  time  necessary 
to  ascertain  the  person  with  whom  he  may  exchange,  just 


EXCHANGES.  1 9$ 

as  the  country  merchant  saves  the  farmer  the  trouble  of 
rinding  a  purchaser  for  his  wheat  or  cotton  ;  and  as  the 
country  storekeeper  brings  the  manufacturer  and  the 
farmer  together,  so  the  exchange  brings  the  different 
merchants  together. 

To  realize  the  enormous  saving  of  time  and  money  and 
the  economizing  of  energy  effected  by  these  institutions, 
let  us  for  a  minute  suppose  the  business  of  a  great  com- 
munity conducted  without  them,  and  each  seller  groping 
around  for  a  buyer,  and  the  buyer  searching  for  a  seller. 
Such  a  condition  would  be  wholly  incompatible  with  the 
life  of  our  century. 

All  of  our  cities,  even  the  smaller  ones,  have  their  Boards 
of  Trade,  and  exchanges  for  the  principal  commodity 
dealt  in,  and  even  our  villages  have  what  to  them  answers 
the  same  purpose,  some  common  meeting-place  for  buyers 
and  sellers. 

The  relative  importance  of  the  different  exchanges  is 
usually  determined  by  the  sales,  and  naturally  in  different 
sections  and  cities  different  exchanges  become  more  or 
less  important  than  in  others.  Thus,  in  New  York,  the 
Stock  Exchange  is  the  most  important  exchange,  owing 
to  the  enormous  transactions  annually  effected,  while  in 
Western  cities  exchanges  for  the  sale  of  produce,  and 
in  the  larger  Southern  cities  those  for  the  sale  of  cotton, 
are  the  most  important. 

In  most  of  the  larger  cities  all  the  chief  trades  and 
businesses  have  their  particular  exchanges,  where  the 
people  interested  in  those  trades  meet. 

Outside  of  a  mere  mention  of  the  principles  of  ex- 
changes in  general,  it  is  not  within  the  purview  of  this 
work,  to  deal  with  any  exchanges  but  those  relating 
particularly  to  finance ;  and  as  an  illustration  of  the 
workings  of  such  exchanges,  and  because  it  is  perhaps 
the  most  interesting  and  generally  discussed  institution  of 
this  kind  in  our  country,  we  have  decided  to  discuss 
somewhat  in  detail — 


196         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

The  New  York  Stock  Exchange. — A  voluntary  un- 
incorporated association  founded  in  the  year  1792,  which, 
after  various  migrations  downtown,  settled  in  1867  in  its 
present  magnificent  home  at  16  Broad  Street. 

There  are  entrances  to  the  building  on  three  streets, 
the  main  one  on  Broad  Street,  access  to  which  is  had  by 
a  flight  of  marble  steps  leading  into  a  corridor,  on  either 
side  of  which  are  elevators  running  to  the  upper  floors, 
where  the  bond  room,  library,  executive  offices,  and  the 
offices  of  the  clerks  of  the  exchange  are  situated.  These 
elevators  also  lead  to  the  Visitors'  Gallery,  which  runs 
partly  round  the  main  hall.  On  Wall  Street,  there  is  an 
entrance  used  by  brokers,  but  to  a  larger  extent  by  sight- 
seers, who  go  usually  by  this  ingress  to  the  gallery  just 
mentioned.  On  New  Street  there  are  two  entrances,  one 
at  the  northern  and  the  other  at  the  southern  end  of  the 
building,  which  are  used  exclusively  by  members,  their' 
clerks,  and  the  employees  of  the  exchange. 

All  entrances  lead  to  the  "  floor  "  of  the  Exchange, 
which  is  on  the  level  of  Wall  and  New  Street,  but  above 
that  of  Broad.  This  "  floor  "  is  a  large  room  almost 
square,  with  a  sort  of  a  bay-window  effect  on  the  Broad 
Street  side,  produced  by  the  irregular  extension  of  the 
hall  in  that  direction.  Opposite  this  is  a  large  board, 
divided  into  different  colored  blocks,  which  blocks  are 
further  subdivided  into  smaller  blocks,  each  of  which,  in  a 
short  time  it  will  be  discovered,  discloses  a  number  in  the 
same  fashion  as  an  hotel  annunciator.  The  number  so 
disclosed  is  the  number  assigned  to  some  broker  or  firm, 
and  indicates  to  him  that  some  one  wishes  to  communi- 
cate with  him.  The  board  is  in  reality  an  annunciator, 
and  without  some  such  contrivance  it  would  be  quite 
impossible,  owing  to  the  noise  and  confusion,  to  secure 
the  attention  of  a  broker  on  the  floor. 

Looking  down  on  the  crowd  of  brokers  beneath,  the 
scene  from  the  gallery  is  one  which  never  fails  to  create 


THE  NEW  YORK  STOCK  EXCHANGE.  1 97 

a  strong  impression  on  the  mind,  and  especially  so  when 
the  market  is  active,  and  there  are  hundreds  of  brokers 
buying  and  selling.  There  is  audible  but  one  continu- 
ous roar  of  voices,  no  one  distinguishable  from  the  rest, 
although  every  now  and  then  you  may  distinguish  "  five 
hundred  f  ths,  two  hundred  Jth,"  etc. ;  the  five  hundred 
and  the  two  hundred  meaning  the  number  of  shares,  and 
the  J-ths  or  Jth  representing  the  fraction  of  a  cent  at 
which  the  stock  is  offered,  no  one  deeming  it  necessary, 
except  in  case  of  an  unusual  rise  or  fall  in  stocks,  to  state 
the  whole  number  of  cents,  as  that  is  presumed  to  be 
known  by  everybody  on  the  floor.  Nor  is  the  name  of 
the  stock  called,  the  seller  or  purchaser  simply  goes  to 
that  portion  of  the  room  where  that  stock  is  dealt  in, 
which  place  is  marked  by  an  iron  stand  supporting  a  pla- 
card on  which  is  printed  its  name.  This,  of  course, 
applies  merely  to  the  principal  active  stocks.  There  are 
many  stocks  which  are  not  active  stocks,  and  which  are 
not  dealt  in  to  such  an  amount  as  to  have  any  separate 
place  assigned  to  them,  but  are  grouped  with  a  number 
of  other  stocks,  in  which  case  the  broker  announces  the 
name  of  the  stock  and  the  price  at  which  he  offers  the  same. 

On  busy  days,  from  six  to  seven  hundred  brokers  are 
often  on  the  floor  at  the  same  moment,  some  offering  and 
others  bidding,  waving  their  arms,  gesticulating,  and  gen- 
erally trying  to  attract  the  attention  of  some  particular 
person,  or  rushing  about  from  crowd  to  crowd,  and  from 
stand  to  stand,  endeavoring  to  fill  their  orders. 

The  fee  fixed  by  the  Stock  Exchange,  which  brokers 
are  to  charge  to  persons  not  members  of  the  Exchange, 
is  one-eighth  of  one  per  cent,  of  the  face  value  of  the 
stock  for  buying,  and  the  same  for  selling,  so  that  to  buy 
and  sell  a  stock  it  costs  one-fourth  of  one  per  cent.  The 
rate  below  which  no  broker  is  allowed  to  deal  with  his 
fellow-brokers  is  two  dollars  a  hundred  shares  for  selling, 
and  two  dollars  a  hundred  shares  for  buying. 


198         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

The  1 5th  of  September  and  Christmas  Eve  are  days 
which  are  not  religiously  observed  in  the  Exchange,  but 
they  are  observed  with  equal  regularity  if  less  decorum. 
White  hats  are  considered  especially  unorthodox  on  the 
1 5th  of  September,  by  which  time  every  well-informed 
broker  is  supposed  to  have  accumulated  sufficient  worldly 
goods  to  purchase  a  Fall  hat,  but  if  he  has  not,  he  cer- 
tainly will  have  to  buy  one  on  margin. 

Only  citizens  of  the  United  States  over  twenty-one 
years  of  age  are  eligible  to  membership,  and  are  admitted 
only  after  application  to,  and  a  thorough  investigation  by, 
the  Admissions  Committee,  and  the  payment  for  a  cer- 
tificate of  membership  which  may  have  been  purchased 
from  some  other  member  of  the  Exchange,  but  no  certifi- 
cate is  of  any  value  so  far  as  its  use  is  concerned  by  the 
individual  purchasing  it,  until  his  application  has  been  ap- 
proved of  by  the  Admissions  Committee,  and  such  mem- 
bership must  be  held  free  and  clear  of  all  debt  and  liability. 
The  seat  to  which  it  entitles  its  holder  is  subject  to  sale 
by  the  Exchange  in  discharge  of  the  obligations  of  its 
holder  to  other  members  ;  any  surplus  remaining  over 
being  paid  to  such  holder  or  his  legal  representatives. 

The  owner  of  a  seat  may  sell  the  same  by  nominating 
a  successor  acceptable  to  the  above-named  committee, 
This  committee  may,  upon  the  death  of  a  member,  trans- 
fer his  membership,  and  after  the  Exchange  has  paid  all 
demands  properly  chargeable  against  the  proceeds  of  such 
transfer,  it  turns  the  remainder  over  to  his  heirs.  On  the 
decease  of  a  member,  his  family  receives  from  the  Gratuity 
Fund  ten  thousand  dollars,this  being  regarded  purely  as  a 
gift  by  the  Exchange,  and  subject  to  no  claims  whatever. 

All  stock  purchased  or  sold  must  be  delivered  between 
1.15  and  2.15  P.M.  If  not  delivered  by  the  last-named 
hour,  the  Exchange  is  notified,  and  demand  is  made  for 
the  stock.  All  stock  purchased  must  be  paid  for  on 
presentation,  most  houses  requiring  certified  checks.  It 
is  here  that  over-certification  is  greatest,  many  banks  find- 


THE  NEW  YORK  STOCK  EXCHANGE.  199 

ing  it  necessary  to  so  accommodate  their  broker  custo- 
mers, who  almost  invariably  make  good  such  over-drafts 
before  the  close  of  the  day,  but  certainly  within  a  reason- 
able time.  The  banks  generally  regarding  such  a  check 
as  an  implied  notice  of  a  deposit  sufficient  to  more  than 
meet  it,  the  stock  itself,  for  which  such  check  is  given 
often  with  more  stock  is  deposited  as  collateral  to  make 
good  such  check,  and  as  this  stock  is  generally  by  com- 
mission houses  bought  for  some  one  else,  the  check  of 
which  purchaser  will  be  doubtlessly  received  and  de- 
posited the  same  day,  the  banks  really  do  not  take  as 
much  risk  as  is  generally  supposed  when  dealing  with 
reputable  houses. 

There  are  about  eleven  hundred  members,  and  as  the 
seats  are  worth  about  $18,000  apiece  at  the  present  time, 
the  cost  of  these  memberships  alone  represents  something 
over  twenty  million  dollars.  All  the  larger  houses  have 
on  the  Exchange  one  or  more  members,  or  clerks. 

Most  of  the  principal  operators  and  firms  doing  the 
greatest  volume  of  business  are  members  more  for  the 
sake  of  getting  the  benefit  of  the  rates  which  brokers  are 
allowed  to  charge  each  other  than  for  the  purpose  of 
actually  dealing  themselves  on  the  floor,  as  their  presence 
would  often  defeat  the  object  they  have  in  view.  Nearly 
all  of  their  larger  purchases  and  sellings  are  done  through 
other  brokers :  and  it  is  a  common  thing  for  an  operator 
desiring  to  keep  his  identity  a  secret,  or  to  mislead  others, 
to  send  some  member,  or  some  broker  known  to  represent 
him  to  sell  a  small  amount  of  stock,  while  some  other 
broker,  supposed  to  represent  opposed  interests  buys  a 
large  amount  of  the  same  stock  for  his  account.  But  if 
we  should  attempt  to  describe  the  various  methods  re- 
sorted to  to  deceive  and  frighten  the  unwary,  we  would 
have  no  room  in  this  work  for  other  equally  important 
matters.  It  is  sufficient  to  say  that  the  Wall  Street 
man  is  ingenious  to  a  degree  seldom  paralleled  in  other 
businesses. 


CHAPTER  XL 

Corporations,  Officers,  Etc. 

Corporations. — Many  enterprises,  businesses,  and  in- 
dustries require  such  a  large  amount  of  capital  in  their 
organization  and  operation,  as  well  as  the  certainty  that 
these  operations  will  not  suddenly  be  suspended  by  the 
death  of  one  individual,  nor  interfered  with  by  the  settle- 
ment and  division  of  assets  rendered  necessary  by  the  re- 
tirement of  a  general  or  special  partner,  and  the  public 
interest  in  them  is  often  so  great,  as  to  render  their  con- 
duct by  individuals  not  only  inadvisable,  but  often 
impossible. 

To  meet  these  objections,  corporations,  or  companies, 
associations  of  men  for  the  prosecution  of  one  or  more 
objects,  are  formed  under  the  laws  of  different  countries. 
They  are  granted  various  privileges  which  neither  are  nor 
can  be  given  individuals,  the  chief  of  which  is  legal  per- 
petuity, or  at  any  rate  existence  for  a  given  time,  if  they 
fulfil  the  requirements  imposed  upon  them  by  the  power 
granting  them  their  charter. 

The  object  of  their  formation  is  not  only  to  secure  the 
perpetuity  of  an  enterprise,  but  to  secure  and  maintain 
sufficient  capital  to  continue  it  when  formed ;  and  this 
can  only  be  accomplished  by  making  the  shares  of  the 
various  persons  interested  easily  transferable  ;  and  defi- 
nitely settling  the  proportion  of  their  interests.  Again, 
many  persons  who  would  be  glad  to  buy  a  stated 

200 


CORPORATIONS,    OFFICERS,   ETC.  2OI 

interest,  the  liability  on  which  was  specified,  in  an  enter- 
prise, which  interest  they  could  readily  transfer,  would  be 
unwilling  to  become  partners,  either  general  or  special,  in 
the  same  thing. 

Corporations  are  formed  to  carry  on  all  kinds  of  busi- 
nesses and  enterprises  which  men  either  individually  or  as 
firms  engage  in,  save  generally  those  requiring  the  personal 
rendering  of  technical  or  professional  services,  although 
even  this  field  is  now  encroached  upon  by  the  title 
companies,  which  employ  large  numbers  of  lawyers  whose 
sole  occupation  is  the  examining  of  titles  to  real  estate, 
and  also  by  dental  companies  employing  a  number  of 
dentists,  and  other  novel  corporate  enterprises. 

Companies  are  most  commonly  organized  to  conduct 
industries  of  considerable  magnitude  requiring  a  large 
capital,  employing  numerous  hands,  and  possessing  valu- 
able franchises,  usually  derived  from  the  Federal  or  State 
governments. 

The  principal  companies,  generally  speaking,  are  those 
engaged  in  transportation,  mining,  and  manufacturing, 
and  the  transmission  of  intelligence,  i.  e.,  telegraph  com- 
panies, press  associations,  etc.,  although  a  great  many 
large  mercantile  houses  have  of  late  reorganized  as  cor- 
porations. 

We  will  take,  by  way  of  illustration,  the  case  of  a  per- 
son owning  valuable  mining  lands,  but  without  the  capital 
necessary  to  make  them  available  and  valuable.  Assist- 
ance from  others  must  be  had,  and  the  most  common 
way  of  obtaining  such  assistance  is  by  the  formation  of  a 
company  by  the  owner  of  the  lands,  and  the  persons  wil- 
ling to  furnish  the  capital,  or  so  much  of  it  as  is  necessary 
to  begin  operations  ;  on  the  formation  of  such  company 
the-  land  owner  transferring  them  to  the  company  for  so 
much  stock  or  money,  and  the  people  furnishing  the 
money  receiving  stock  for  the  money  furnished. 

To  a  limited  extent  the  same  result  may  be  attained 


202         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

by  a  partnership,. but  if  the  amount  needed  is  large,  and 
has  to  be  subscribed  by  a  number  of  people,  it  is  found 
that  the  partnership  becomes  unwieldy,  and  the  interests 
of  the  several  partners  difficult  of  adjustment. 

Having  brought  together  the  persons  desiring  to  form 
such  corporation,  the  next  step  is  to  proceed  with  the 
organization,  which  is  accomplished  in  substantially  the 
same  way  in  all  States,  but  the  regulations,  requirements, 
and  restrictions  of  many  of  the  States  differ,  some  being 
more  and  others  less  severe.  The  laws  of  the  same 
State  also  differ  with  respect  to  the  various  kinds  of  com- 
panies. 

Before  organizing,  it  is  very  important  for  the  incorpo- 
rators  to  decide  upon  the  State  under  whose  laws  they 
will  organize,  and  a  judicious  decision  on  this  point  can 
generally  best  be  arrived  at  by  following  the  advice  of 
some  well  known  corporation  lawyer. 

Except  in  the  case  of  companies  which  derive  privi- 
leges from  the  States  where  they  operate,  a  company  may, 
as  a  rule,  become  incorporated  under  the  laws  of  whatever 
State  it  pleases,  and  the  incorporation  of  a  company  under 
the  laws  of  another  State  does  not  exempt  it  from  the 
restrictions  on,  or  duties  to  be  performed  by,  like  compa- 
nies organized  under  the  laws  of  the  State  in  which  it 
transacts  its  business. 

In  all  States  the  first  thing  to  be  done  is  to  file  with 
the  proper  State  officer,  usually  the  Secretary  of  State,  a 
certificate  of  incorporation,  stating  the  Act  under  which 
the  company  is  organized,  if  the  character  of  the  com- 
pany is  such  that  it  can  organize  under  a  given  Act 
(some  companies,  being  permitted  only  by  special  Act 
of  the  Legislature  to  organize). 

In  the  case  of  railroads  and  other  corporations,  organ- 
ized by  special  Act  of  the  Legislature,  it  is  necessary  to 
secure  the  passage  of  such  an  Act  before  any  further  step 
is  taken,  and  then,  if  the  company  intends  to  operate  in 


CORPORATIONS,    OFFICERS,    ETC.  203 

or  through  certain  cities,  a  resolution  or  ordinance  of  the 
Board  of  Aldermen,  or  the  Common  Council,  or  whoever 
may  have  control  of  such  privileges,  and  generally  to  fur- 
ther obtain  the  consent  of  the  property  holders  owning 
two-thirds  in  value  of  the  real  estate  in  the  streets  of  such 
city  through  which  the  road  will  run. 

While  in  the  State  of  New  York  there  must  be  remitted 
with  the  certificate  of  incorporation  a  tax  of  one-eighth  of 
one  per  cent,  on  the  capital  stock  of  the  company  sought 
to  be  organized,  together  with  the  fees  charged  for  the 
receiving  and  issuance  of  the  necessary  papers,  in  many 
States  no  such  tax  is  imposed,  and  only  a  charge  by  the 
Secretary  of  State  is  made. 

The  importance  of  having  the  organization  properly 
incorporated  and  all  the  legal  requirements  attended  to 
cannot  be  too  strenuously  dwelt  upon  ;  and  good  business 
men  have  come  to  realize  that  the  certificate  of  a  well 
known  legal  firm  as  to  the  clearness  of  the  title,  the  com- 
pliance with  statutory  legislation,  and  other  legal  require- 
ments add  a  value  to  the  securities  of  the  company  far  in 
excess  of  the  cost  of  the  services  rendered. 

A  Certificate  of  incorporation  must  be  filed  with  the 
Secretary  of  State  containing  the  name  and  object  of  the 
company,  the  names  of  the  directors  for  the  first  year 
(usually  chosen  by  the  subscribers  to  the  stock),  the  num- 
ber of  directors  who  shall  thereafter  govern,  the  amount 
of  capital  stock,  and  the  location  of  the  company's  prin- 
cipal office,  to  which  is  usually  added  a  provision  for  the 
increase  or  decrease  of  capital  stock.  The  payment  of 
the  tax,  which  is  levied  upon  the  proposed  capital  of 
most  companies,  should  usually  accompany  the  cer- 
tificate. 

Under  the  laws  of  none  of  our  States  of  which  the 
writer  is  aware  is  a  company  required  to  begin  operations 
with  the  full  amount  of  its  capital  stock  paid  in,  except 
in  the  case  of  trust  companies  of  the  State  of  New  York. 


204         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

In  most  cases  this  would  be  an  obvious  impossibility, 
owing  to  the  inability  of  any  man  or  number  of  men  pla- 
cing the  stock  and  bonds  of  a  company  immediately  upon 
its  organization.  In  fact,  most  companies  reserve  a  por- 
tion of  their  bonds  and  stocks  in  their  treasury  in  antici- 
pation of  future  needs. 

Attached  to  the  certificate  of  incorporation  should  be  a 
copy  of  the  constitution  and  by-laws. 

Companies  operating  in  one  State,  but  organized  under 
the  laws  of  another,  are  required  to  name  a  resident  at- 
torney in  fact,  possessed  of  the  usual  powers  given  such 
attorneys. 

According  to  the  laws  of  some  of  the  States,  the  princi- 
pal office  of  such  company  must  be  in  the  State  under 
the  laws  of  which  it  is  organized,  where  its  books — espe- 
cially its  stock  and  transfer  books — must  be  kept,  but  this 
is  not  always  so,  especially  in  the  case  of  West  Virginia. 
Companies  organized  under  the  laws  of  the  State  of  New 
York  are  required  to  have  a  certain  per  cent,  of  their 
directors,  according  to  the  character  of  the  corporation, 
residents  of  the  State. 

Privileges  or  concessions  are  usually  granted  upon  cer- 
tain conditions,  varying  according  to  the  character  of  the 
company,  the  nature  of  its  business,  and  the  source  from 
which  they  are  received. 

As  to  the  distinction  between  and  the  rights  of  stock- 
holders, and  bondholders,  and  stock  and  bonds,  see  Chap- 
ter XIV. 

Officers. — A  few  suggestions  as  to  the  duties  of  the 
President,  Vice-President,  Secretary,  and  Treasurer  of  a 
Corporation. 

In  order  to  conduct  business  with  dispatch  and  cer- 
tainty, and  to  enter  into  contracts  which  will  be  binding 
upon  both  parties,  it  is  necessary  not  only  that  a  person 
having  dealings  with  corporations  should  have  some 
knowledge  of  the  powers  of  the  officers  of  such  corpora- 


CORPORATIONS,    OFFICERS,    ETC.  2O$ 

tions,  but  also  that  the  officers  themselves  should  know 
the  extent  and  limitations  of  their  powers  and  duties,  so 
that  they  may  exercise  these  duties  and  powers  within 
their  legitimate  range.  It  has,  therefore,  been  thought 
wise  to  make  a  few  general  comments  on  this  subject. 

The  President,  as  the  head  of  a  corporation  and  its 
chief  officer,  would  naturally  be  spoken  of  first,  though  in 
some  cases  instead  of  a  President,  a  Corporation  or  Com- 
pany is  managed  by  Commissioners  or  a  Committee  who 
may  or  may  not  have  a  Chairman,  but,  as  a  general  thing, 
each  Corporation  has  its  President. 

Before  proceeding  specifically  to  enumerate  the  duties 
of  these  officers,  it  is  well  to  state  that  their  powers  are 
usually  prescribed  by  the  Constitution  and  By-Laws  of 
the  Company  which  they  serve  ;  in  some  companies  the 
powers  of  the  officers  being  very  great  and  in  others  more 
limited.  And  while  in  some  cases  the  duties  of  one  officer 
are  assigned  to  some  other  officer,  notably  in  the  case  of 
the  Secretary  and  Treasurer,  yet  as  a  rule  the  officers 
subsequently  named  have  substantially  the  following 
duties  assigned  them. 

President. — The  President  is  always  a  member  of  the 
Board  of  Directors  or  Trustees,  and  usually  its  Chairman. 
He  is  vested  with  power  to  enter  into  and  sign  contracts, 
deeds,  agreements,  and  various  other  legal  documents  by 
direction  of  the  Board  of  Directors  or  Trustees. 

He  is  expected  to  be  present  and  preside  at  all  meet- 
ings of  the  Board  of  Directors  and  Stockholders.  To 
him  is  entrusted  the  general  management  of  the  Company 
and  the  employment  of  its  subordinates.  Other  officers 
who  employ  clerks  or  laborers  derive  their  power  from 
him. 

All  important  documents  with  the  Company  should 
bear  the  signature  of  the  President. 

Vice-President. — The  Vice-President,  in  the  absence  of 
the  President,  performs  the  duties  assigned  him ;  but 


206         PRINCIPLES  AND  PRACTICE    OF  FINANCE. 

when  the  President  is  present,  the  Vice-President's  duties 
are  principally  those  of  an  assistant  to  the  President,  al- 
though, in  large  corporations  Vice-Presidents  usually 
have  charge  of  some  particular  department. 

Secretary. — The  Secretary's  duties  are  confined  princi- 
pally to  the  keeping  of  the  records  of  the  Company,  con- 
sisting of  the  meetings  of  the  Board  of  Directors  and 
the  meetings  of  the  stockholders,  the  issuance  of  calls  to 
such  meetings,  and  the  submission  of  the  Annual  Re- 
ports placed  in  his  hands  to  the  Board  of  Directors  and 
the  stockholders ;  to  the  conduct  of  the  correspondence  ; 
and  he  is  generally  called  upon  to  attest  all  documents 
signed  by  the  President,  to  sign  the  bonds  and  coupons 
attached  thereto,  certificates  of  stock,  and  to  see  to  the 
transfer  of  stock  certificates,  and  to  attach  the  seal  of 
the  Corporation  to  all  contracts  requiring  such  seal. 

Under  the  By-Laws  of  many  institutions  the  Secretary 
is  made  Assistant-Treasurer,  so  that  in  the  absence  of  the 
Treasurer  he  may  perform  the  duties  pertaining  to  that 
office. 

The  office  of  Secretary  and  Treasurer  are  also  fre- 
quently combined,  in  which  case,  in  addition  to  the  duties 
above  enumerated,  he  discharges  those  duties  which  the 
Treasurer  is  usually  called  upon  to  perform. 

Treasurer. — The  Treasurer  is  more  particularly  the 
financial  man  of  a  company,  and  under  his  direction  are 
kept  the  books,  showing  the  assets  and  liabilities  of  the 
Company,  and  its  general  business  transactions.  It  is 
his  duty,  with  the  direction  of  the  Board  of  Directors,  to 
designate  a  bank  in  which  the  funds  of  the  Corporation 
shall  be  deposited,  and  therein  to  deposit  them. 

He  is  also  required  (by  most  companies)  to  counter- 
sign all  contracts,  checks,  notes,  and  other  evidences  of 
debt  or  promises  to  pay,  which  have  to  be  signed  by  the 
President. 

General  Manager. — The  General   Manager,   while    not 


CORPORATIONS,    OFFICERS,   ETC.  2O/ 

necessarily  a  member  of  the  Board  of  Directors,  and  sup- 
posed to  be  subordinate  to  the  President,  is  perhaps  the 
one  officer  with  whom  the  public  deals  most  directly,  and 
Avhose  power  it  is  most  important  that  they  should  under- 
stand. 

His  power,  as  stated,  is  derived  principally  from  the 
President  as  under  the  constitution  of  most  companies 
the  General  Manager  is  appointed  by  the  President,  but 
when  appointed  by  the  Board  of  Directors  is  answerable 
to  them.  In  such  case  his  duties  and  powers  are  pre- 
scribed in  the  By-Laws. 

It  is  ordinarily  safe  to  assume  that  the  General  Mana- 
ger has  power  to  enter  into  contracts  for  supplies  and 
such  material  as  is  legitimately  needed  in  the  opera- 
tion of  the  particular  business  under  his  control,  and  to 
make  agreements  for  the  employment  of  clerks  and 
laborers  and  others  necessary  to  the  operation  of  the 
company. 

In  the  case  of  a  contract  involving  a  large  sum  of 
money,  or  one  which  it  is  not  commonly  known  that  the 
General  Manager  has  power  to  bind  the  company  upon, 
it  is  wise  to  have  the  same  ratified  and  confirmed  by  the 
President.  There  are,  however,  certain  contracts  and 
deeds  which  even  the  President  has  not  the  power  to 
enter  into,  these,  as  a  general  rule,  are  contracts  dis- 
posing of  some  portion  of  the  assets  or  franchises  of  the 
company,  the  power  to  dispose  of  which  rests  with  the 
stockholders  only. 

The  issuance  of  new  stocks  or  bonds  can  only  be 
legally  done  by  the  direction  of  the  stockholders. 

In  many  companies,  while  the  President  and  Treas- 
urer finally  sign  a  contract,  still  their  power  is  limited, 
and  they  are  only  empowered  so  to  do  after  the  passage 
of  a  resolution  to  that  effect  by  the  Board  of  Directors. 

Of  course,  it  is  obviously  impossible  to  give  more  than 
the  briefest  outline  of  the  duties  of  the  various  officers  of 


208 


PRINCIPLES  AND  PRACTICE   OF  FINANCE. 


a  corporation,  and  when  a  person  is  in  doubt  as  to  the 
ability  of  a  particular  officer  or  of  particular  officers  to 
bind  a  company,  it  is  always  best  to  consult  some  repu- 
table attorney  in  respect  thereto,  because  there  is  no 
greater  source  of  litigation  than  the  repudiation  of  con- 
tracts by  corporations,  the  defence  almost  invariably  set 
up  being  that  the  officer  exceeded  his  power. 


CHAPTER  XII. 

Stocks,   Bonds,  Warrants,  and  Receivers'  Certificates. 

No  work  on  Finance  would  be  complete  without  some 
treatment  of  this  subject,  and  while  it  is  a  rather  recent 
development  of  finance,  it  constitutes  to-day  one  of  its 
most  important  divisions.  The  size  of  this  book,  how- 
ever, permits  only  of  a  very  brief  discussion  of  the  sub- 
ject. 

As  certificates  of  stock  or  shares  are  written  evidence 
of  the  rights  of  their  holders,  transferable  on  sale  or  regis- 
tration, and  bonds  are  subsequently  issued  by  authoriza- 
tion and  direction  of  these  holders,  we  will  follow  in  our 
treatment  of  the  subject,  this  order. 

Before  proceeding  to  a  particular  consideration  of 
stocks  and  bonds,  it  seems  necessary  to  say  a  word  as  to 
the  necessity  of  their  issuance. 

One  of  the  objects  of  incorporation  is  to  afford  the  pub- 
lic an  opportunity  to  subscribe  the  requisite  capital  for 
the  organization  and  operation  of  an  enterprise,  and  after 
the  purchase  of  its  plant  and  franchises  partly  if  not 
wholly  by  the  money  paid  in  by  the  shareholders,  it  issues 
its  bonds,  secured  by  a  mortgage  on  its  assets,  or  some 
part  thereof,  with  which  to  secure  whatever  money  may 
be  needed  for  its  further  completion  and  operation. 

Stocks. 

Shares,  in  the  United  States  generally  called  "  Stock," 
are  certificates  issued  by  a  corporation,  certifying  that 
the  person  in  whose  name  they  are  written  and  stand 

209 


210         PRINCIPLES  AND   PRACTICE   OF  FINANCE. 

registered  on  the  books  of  the  company,  is  entitled  to 
a  portion  of  the  corporation's  profits,  to  the  right,  by 
vote,  to  participate  in  its  management,  and,  according  to 
the  character  of  the  shares,  liable  to  assessment  for  its 
debts.  It  must  be  borne  in  mind,  however,  that  all  stock 
is  not  registered,  nor  is  all  assessable.  The  shareholder 
is,  for  the  time  being,  a  limited  partner  in  the  enterprise 
by  which  his  shares  are  issued,  but  this  interest  is  more 
readily  transferable,  and  his  rights  having  been  previously 
determined,  are  more  easily  disposed  of,  than  in  the  case 
of  an  ordinary  special  partnership  interest. 

While  all  shares  entitle  their  holders  to  a  certain  pro- 
portion of  the  net  earnings  of  the  corporation,  it  must  be 
remembered  that  these  earnings  can  only  be  computed 
and  distributed  among  the  shareholders  after  the  payment 
of  all  obligations  of  the  company,  such  as  operating  ex- 
penses, fixed  charges,  etc.,  inasmuch  as  the  shareholder  is 
regarded  in  law  as  a  partner  in  the  enterprise,  and  there- 
fore the  last  person  entitled  to  share  in  the  distribution  of 
its  assets.  Bondholders,  on  the  contrary,  are  creditors 
of  the  corporation,  having  loaned  or  advanced  it  money, 
receiving  as  evidence  of  such  loan,  a  bond  secured  by  a 
mortgage  on  the  property  and  earning  capacity  of  the 
company.  Because  of  this  liability  of  the  shareholders  (in 
the  case  of  assessable  shares)  and  their  position  as  special 
partners,  they  are  given  the  control  of  the  company, 
whereas  the  bondholders  being  in  the  position  of  lenders 
or  creditors  of  such  corporations  are  not  generally  ac- 
corded any  voice  in  the  management  of  a  solvent  com- 
pany, although  there  are  being  issued  by  some  few 
corporations,  bonds  giving  their  owners  certain  rights  of 
participation  in  the  corporate  management  in  the  event  of 
certain  contingencies  arising.  This,  however,  is  in  direct 
contravention  of  the  principles  upon  which  shares  and 
bonds  are  issued  and  held,  and  is  not,  therefore,  very 
popular  or  resorted  to  often. 


STOCKS,    BONDS,   ETC.  211 

The  rights  and  liabilities  of  shareholders  are  determined 
not  alone  by  the  language  of  the  share,  but  also  by  the 
statute  law  of  the  State  or  country  from  which  the  cor- 
poration issuing  such  shares  derives  its  powers. 

Having  broadly  defined  shares  we  must  now  proceed  to 
a  more  specific  consideration  of  their  different  kinds,  the 
six  principal  kinds  being:  1st,  Assessable  ;  2d,  Non-Assess- 
able ;  3d,  Preferred  ;  and  4th,  Common  ;  and  all  shares 
belong  to  one  or  more  of  these  kinds.  A  5th  kind  of 
share,  known  as  Cumulative,  is  issued,  and  a  6th,  Non- 
Cumulative. 

Assessable. — The  stock  of  many  corporations  under  the 
laws  of  the  United  States  and  the  States,  under  one  of 
which  they  must  organize,  is  made  assessable ;  thus  the 
shareholders  of  national  banks  are  made  liable  to  the 
amount  of  the  value  of  their  stock  to  the  creditors  of  the 
bank.  In  other  words,  a  holder  of  $100,000  of  the  shares 
of  a  national  bank  would  be  liable  to  assessment  to  that 
amount  in  addition  to  the  application  of  the  money  paid 
in  for  the  purchase  of  the  stock.  Many  transportation 
and  industrial  companies  issue  assessable  stock,  and  a 
purchase  of  this  stock  in  any  but  a  sound  and  well-man- 
aged corporation  is  attended  with  considerable  responsi- 
bility. The  limit  of  assessment,  however,  in  all  cases  is 
100  per  cent,  upon  the  face  of  the  shares.  Assessable 
stock  may,  instead  of  being  an  asset  of  its  holder,  become 
an  actual  liability,  on  account  of  the  responsibility  as- 
sumed in  the  payment  of  assessments,  and  it  often  be- 
comes impossible  to  give  it  away. 

In  case  of  the  insolvency  of  a  corporation  issuing  assess- 
able stock,  bondholders  and  other  creditors  may  institute 
civil  actions  to  recover  their  pro  rata  contributions  from 
each  holder  of  assessable  stock. 

Non-Assessable  Stock. — No  explanation  is  needed  as  to 
the  character  of  this  stock.  It  carries  with  it  all  the  rights 
and  privileges,  but  none  of  the  liabilities  and  responsibili- 


212          PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

ties  inherent  in  an  assessable  stock,  and  the  utmost  obliga- 
tory loss  that  can  be  sustained  by  its  holder  is  that  of 
the  amount  paid  for  the  stock.  The  holder  of  non-assess- 
able stock,  however,  may,  in  common  with  other  holders, 
voluntarily  consent  to  the  payment  of  an  assessment  for 
the  purpose  of  putting  the  corporation  issuing  the  stock 
in  a  better  financial  condition. 

Preferred  Stock. — Preferred  here  means  that  the  stock 
so  called  has  a  preference  over  other  stock  in  the  payment 
of  dividends.  It  does  not  affect  the  general  character  of 
the  stock,  which  may  be  assessable  or  non-assessable,  cumu- 
lative or  non-cumulative.  The  effect  of  the  word  is  simply 
to  entitle  the  holder  of  such  stock  to  be  the  first  to  par- 
ticipate in  the  net  earnings  of  the  corporation.  This  stock 
is  also  further  divided  into  first,  second,  and  sometimes 
even  third  preferred,  all  of  which  come  before  common 
stock.  All  stock,  however,  generally  has  the  same  voting 
rights,  although  occasionally  where  a  special  guarantee  is 
made  the  preferred  stockholders,  putting  them  in  the 
peculiar  position  of  being  partly  owners  and  partly  credit- 
ors of  the'  corporation,  they  are  deprived  of  the  right  to 
vote,  and  the  controlling  power  is  exercised  solely  by 
the  common  shareholders.  But  the  dividend  to  which 
the  preferred  stockholders  may  become  entitled  is  gener- 
ally specifically  stated,  and  any  surplus  remaining  after 
such  payment  goes  to  the  common  shareholder.  In  a  few 
isolated  cases  of  extraordinarily  successful  companies,  it 
has  been  found  that,  after  the  payment  of  the  specified 
dividends  to  the  preferred  shareholders,  the  amount  re- 
maining as  a  dividend  to  the  common  shareholders  was 
so  largely  In  excess  of  the  dividend  payable  to  the  pre- 
ferred that  provision  was  made  that  after  payment  of  a 
certain  dividend  to  both  preferred  and  common  share- 
holders the  balance  should  be  divided  equally  between 
them.  The  value  of  the  preferred,  as  well  as  all  other 
stocks,  may  be  seriously  impaired,  not  only  by  the  incur- 


STOCKS,    BONDS,   ETC. 

ring  of  floating  debt,  but  by  the  making  and  issuing  of 
bonds  secured  by  mortgages  ;  but  inasmuch  as  these 
bonds  and  other  debts  can  be  incurred  and  the  obligations 
can  be  ratified  only  by  the  action  of  the  shareholders, 
through  their  representatives,  the  directors  or  trustees  of 
a  corporation,  attempts  on  the  part  of  shareholders  to  re- 
pudiate such  obligations  have  almost  invariably  been  ren- 
dered futile  by  the  decrees  of  our  courts,  because  even 
though  the  issue  of  such  obligations  should  be  proven  to 
be  fraudulent,  the  innocent  holder  should  not  be  made  to 
suffer  for  such  wrong,  but  the  agents  of  the  shareholders 
who  exceeded  or  abused  their  powers  might  be  held 
accountable. 

Common  Stock. — After  pointing  out  the  distinction 
between  preferred  and  common  stock,  which  necessarily 
involved  an  explanation  of  the  right  of  the  common  stock- 
holders, little  need  be  said  in  this  regard. 

While  the  common  shares  are  the  last  to  participate  in 
the  distribution  of  the  net  earnings  of  a  company  after 
the  payment  of  accrued  indebtedness,  in  exceptional  cases 
where  these  net  earnings  are  very  large  and  a  limit  is 
placed  on  the  dividends  payable  on  anterior  stocks,  the 
common  becomes  more  valuable  than  the  preferred. 

Cumulative. — A  cumulative  stock  is  one  on  which  the 
corporation  agrees  to  pay  dividends  past  due  and  unpaid 
before  declaring  a  dividend  on  stocks  coming  after  it  in 
the  distribution  of  net  earnings,  and  is  necessarily  a  pre- 
ferred stock,  to  that  extent  at  least. 

The  cumulative  feature  of  a  stock  at  best  can  only  be 
effective  as  against  subsequent  shareholders,  as  all  accrued 
debts  of  the  company  must  be  provided  for  before  either 
present  or  past  dividends  can  be  declared.  The  cumula- 
tive feature,  while  it  adds  an  additional  value  to  preferred 
stock,  to  the  same  extent  lessens  the  chances  of  participa- 
tion in  earnings  by  the  common  stock,  and  hence  decreases 
its  value. 


214         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

Non-Cumulative  Stock  is  stock  without  this  provision 
for  the  payment  of  past  due  dividends. 

Unless  specifically  stated,  the  dividends  on  a  stock  are 
non-cumulative,  and  in  the  case  of'  the  issue  of  only  com- 
mon or  capital  stock  this  cumulative  provision  would  be 
of  no  effect  in  any  event,  because  the  shareholders  could 
at  best  do  no  more  than  participate  in  the  final  net  earn- 
ings, and  even  without  a  cumulative  clause,  if  those  final 
net  earnings  were  sufficient  to  pay  past  due  dividends, 
could  declare  the  same ;  unless  restricted  by  law,  as  some 
of  our  corporations  possessing  valuable  franchises  from 
States  and  cities  have  been,  from  declaring  dividends  in 
excess  of  a  certain  percentage  per  year,  although  this 
restriction  has  been  generally  avoided  by  the  issue  of  an 
amount  of  stock  sufficient  to  bring  the  dividends  within 
the  maximum  rate  which  the  law  permits  to  be  declared. 
Thus,  if  after  paying  all  fixed  charges  a  corporation  with  a 
capital  stock  of  $10,000,000  should  have  final  net  earnings 
of  $i  ,200,000,  and  the  law  prohibited  the  declaring  of  a  divi- 
dend in  excess  of  6  per  cent,  on  the  stock  of  the  company, 
by  doubling  the  amount  of  its  capital  stock  it  would  then 
be  enabled  to  pay  just  6  per  cent,  and  thus  come  within 
the  restriction  of  the  law.  Various  laws  have  been  enacted 
looking  to  the  prevention  of  what  is  known  as  the  water- 
ing of  stock,  even  going  to  the  extent  of  compelling  the 
corporation  to  reduce  the  charge  for  its  commodities  or 
services  ;  yet  so  long  as  such  corporation  is  able  to  declare 
a  fair  dividend  on  its  issue  of  stock,  so  long  will  there  be 
a  market  for  that  stock. 

In  the  absence  of  governmental  restriction  as  to  the 
amount  of  dividend  paid,  it  sometimes  happens,  in  the  case 
of  very  successful  corporations,  that  their  stock  becomes 
more  valuable  than  their  bonds,  the  bonds  being  a  fixed 
charge  the  interest  upon  which  is  specified,  while  the  divi- 
dends upon  the  stock  may  amount  to  a  larger  percentage 
of  interest  than  that  paid  on  the  bonds,  besides  carrying 
with  it  the  control  of  the  company. 

L 


STOCKS,    BONDS,   ETC.  21$ 

Common  stock  is  sometimes  given  to  purchasers  of 
bonds  as  a  bonus,  and  of  course  carries  with  it  the  right 
to  participate  as  shareholders  in  the  management  of  the 
corporation. 

Promoters  Shares. — Promoters'  shares  are  issued  by  cor- 
porations in  payment  of  the  services  of  the  promoters  in 
the  organization  of  such  companies.  The  issue  of  this 
stock,  while  quite  common  in  England,  is  very  infrequent 
in  this  country,  payment  being  usually  demanded  by  our 
bankers  or  promoters  either  in  money,  mortgage  bonds, 
perferred,  or  common  stock.  A  promoter's  share  is 
entitled  to  participation  in  the  final  net  earnings  of  a 
company  only  after  payment  of  all  accrued  obligations, 
including  the  establishment  of  any  sinking  fund  or  surplus 
which  either  the  articles  of  incorporation  or  the  constitu- 
tion and  by-laws  or  the  bonds  or  mortgages  provide  for ; 
but,  as  it  is  entitled  to  absorb  the  final  amount  remaining, 
in  the  absence  of  provision  in  the  other  stocks  to  the 
contrary,  after  the  above  payments  they  sometimes  be- 
come very  valuable. 

Dividends. — Dividends,  it  must  be  remembered,  stand  to 
the  stockholder  in  the  same  relation  that  the  division  of 
the  profits  of  a  private  business  do  to  the  partners  therein, 
consequently  they  should  only  be  declared,  and  can 
legally  only  be  paid,  after  the  payment  of  all  accrued  in- 
debtedness, including  the  setting  aside  and  creation  of 
any  fund  or  funds  which  the  corporation  binds  itself  to  its 
creditors  to  create  and  set  aside. 

Stocks  are  sold  "  dividend  "  or  "  ex-dividend."  When 
a  dividend  is  declared  a  day  is  fixed  for  the  closing  of  the 
transfer  books  of  the  company,  after  which  date  no  trans- 
fers can  be  made  until  the  books  have  been  reopened. 
On  the  morning  of  the  day  that  the  books  are  closed  the 
stock  is  sold  on  the  New  York  Stock  Exchange  "  ex- 
dividend  " — an  amount  equal  to  that  of  the  dividend 
declared  being  deducted  from  the  price  at  which  the  stock 
would  ordinarily  be  sold.  It  is  needless  to  say  that  this 


2l6         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

applies  only  to  sales  on  the  exchange,  as  a  private 
purchaser  can  stipulate  that  the  dividend  be  included,  or 
not,  as  he  chooses — the  result,  however,  being  practically 
the  same. 

Guaranteed  Stock. — Stocks  of  subsidiary,  auxiliary, 
leased,  or  rented  properties  are  often — in  fact  generally — 
guaranteed  by  the  principal  company.  Usually  in  case  of 
lease  or  rental,  however,  only  the  interest  is  guaranteed 
by  the  lessee  company,  unless  it  be  a  lease  for  a  period 
which  means  practical  ownership  or  control,  when  both 
principal  and  interest  are  guaranteed. 

In  the  case  of  a  leased  company  such  a  guarantee  con- 
stitutes a  claim  which  must  be  paid  even  before  the  fixed 
charges  of  the  lessee  company.  The  default  of  payment 
abrogates  the  contract,  with  the  institution  of  such  penalty 
against  the  guarantor  as  may  be  stipulated.  Thus  often 
companies  which  were  at  one  time  very  prosperous  are 
dragged  down  by  the  weight  of  guarantees  on  securities 
of  their  connections  or  branches  which  were  hastily  and 
unwisely  taken  into  their  systems. 

Trust  companies  and  bankers  are  frequently  appointed 
as  the  fiscal  agents  of  corporations  for  the  purpose  of 
registering  and  certifying  to  the  regularity  of  the  issue  of 
stocks. 

A  brief  explanation  of  such  terms  as  "  Assented  "  stock, 
"  First  Assessment  paid,"  etc.,  is  desirable.  Stocks  thus 
designated  usually  remain  in  the  hands  of  holders,  and 
their  character  is  only  so  far  changed  as  indicated  by  the 
words  which  are  stamped  or  written  upon  them.  This  is 
done  by  the  trustee.  In  cases  where  an  assessment  is 
found  necessary,  the  holders  of  the  security  assessed  are 
requested  to  bring  such  security  to  the  firm,  bank,  or  trust 
company  having  the  matter  in  charge,  and  have  them 
certify  by  stamping  or  writing  upon  the  security  that  the 
assessment  has  been  paid.  The  same  applies  to  the  assent 
of  security  holders  to  any  plan  for  merging  them  into,  or 


STOCKS,   BONDS,   ETC.  21? 

exchanging  for,  other  or  new  issues.  They  are  thus 
stamped  in  order  that  they  may  be  distinguished  ,  from 
others  which  have  not  paid  the  "  assessment  "  or  "  as- 
sented "  to  the  plan,  as  it  will  readily  be  seen  that  the 
compliance  with  the  terms  proposed  in  either  case  may 
affect  the  market  values  of  the  securities  to  a  considerable 
extent. 

The  exchange  quotations  distinguish  such  securities  by 
prefixing  the  abbreviations  "  1st  (or  2d)  Asst.  pd."  or 
"  Assented,"  as  the  case  may  be.  There  are  many  other 
conditions  under  which  bonds  and  stocks  are  stamped,  in 
order  to  signify  their  acceptance  of  various  propositions. 
The  above  instances  are  merely  cited  as  illustrations. 

Bonds. 

The  following  observations  on  the  above  subject  will  be 
confined  entirely  to  government  and  corporate  bonds. 

A  bond  is  an  instrument  by  which  the  maker  binds  him- 
self under  certain  conditions  to  the  performance  of  some 
particular  thing.  Government,  State,  or  municipal  bonds, 
properly  so  called,  are  seldom  secured  by  a  mortgage  on 
anything  beyond  a  certain  portion  of  the  taxing  power  of 
the  maker,  which  may  be  pledged  to  the  holder  for  the 
payment  of  the  interest  and  principal  of  such  bond.  Vil- 
lage, town,  district,  county,  and  State  warrants  partake  of 
the  nature  of  bonds,  and,  in  common  with  bonds  issued  by 
municipalities  and  States,  are  known  as  Investment  Securi- 
ties, and  will  be  treated  of  under  that  head,  to  which  the 
reader  is  referred. 

Corporate  Bonds. — The  bonds  of  corporations  are  com- 
monly known  as  mortgage  bonds,  and  are  secured  by  a 
mortgage  upon  its  entire  plant,  franchises,  and  assets,  or  a 
portion  thereof,  the  exact  portion  of  which  is  or  should  be 
always  stated  in  the  mortgage  to  which  the  bond  refers. 

Attached  to  these  bonds  are  coupons  payable  at  given 
periods,  generally  semi-annually,  stating  that  the  holder  is 


2l8         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

entitled  to  the  interest  then  falling  due.  This  is  very  con- 
venient, as  the  coupon  containing  the  number  of  the  bond 
and  signed  by  the  proper  officer  or  officers,  without  the 
presentation  of  the  bond  itself,  shows  the  holder  of  such 
coupon  to  be  entitled  to  the  interest  in  it  named,  and  of 
course  is  transferable  on  delivery. 

A  corporate  bond,  in  common  with  all  other  bonds,  is 
a  written  evidence  of  the  obligation  of  the  corporation  to 
perform  certain  acts  therein  named  in  consideration  of  the 
payment  to  the  company  of  a  specified  value  (it  is  not  in- 
tended to  convey  the  impression  that  bonds  are  always 
sold  for  the  amount  stated  on  their  face,  they  sometimes 
being  sold  at  a  premium  and  other  times  at  a  discount), 
for  which  the  bond  is  a  receipt,  and  a  bondholder,  conse- 
quently, is  in  the  position  of  a  creditor  of  the  company, 
which,  until  the  payment  and  cancellation  of  such  bond,  is 
indebted  to  him  for  the  payment  for  which  the  bond  is  a 
receipt. 

The  rights  of  bondholders  are  determined  by  the  lan- 
guage of  the  bond,  as  well  as  by  the  language  of  the 
mortgage  securing  the  same,  and  the  laws  governing  the 
issue  of  such  bonds. 

At  the  present  time  a  mortgage  securing  the  payment 
of  corporate  bonds  is  usually  placed  in  the  hands  of  a 
trustee,  generally  some  trust  company,  which  is  supposed 
to  act  in  behalf  of  the  bondholders  as  a  unit,  and  which  is 
empowered  by  the  language  of  the  bond,  in  the  event  of 
the  failure  of  the  corporation  to  perform  the  obligations  it 
assumes  in  said  bond,  to  foreclose  the  mortgage  and  divide 
the  proceeds  of  sale  among  the  bondholders. 

The  practical  question,  and  the  one  which  really  regu- 
lates the  amount  of  the  issue  of  bonds,  is  the  ability  of 
the  company  to  finance  or  place  them  on  the  market. 
Where  the  bonded  indebtedness  is  in  excess  of  the  value 
of  the  mortgaged  property  and  the  earning  capacity  of 
the  corporation,  it  is  much  more  difficult  to  secure  pur- 


STOCKS,    BONDS,   ETC.  21$ 

chasers  than  where  the  mortgaged  property  and  the  earn- 
ing capacity  forms  an  ample  security  for  such  bonds. 

The  laws  in  most  States  are  designed  especially  for  the 
benefit  and  protection  of  .the  public  from  the  usurpation 
of  power  by  corporations,  and  as  in  many  companies — 
especially  railroad  and  telegraph  companies — valuable 
franchises  are  afforded  them  by  the  government,  it  in 
turn  restricts  the  exercise  of  those  franchises  and  limits  a 
corporation  in  various  ways,  too  numerous  even  to  sug- 
gest here,  and  it  is  very  essential  to  a  determination  of 
the  value  of  either  a  share  or  a  bond  to  know,  first,  the 
power  given  such  corporation,  and  next,  the  legal  limita- 
tions and  restrictions  upon  the  exercise  of  its  corporate 
powers. 

It  must  be  borne  in  mind  that  bonds  can  only  be  issued 
by  the  consent  and  direction  of  the  shareholders,  because 
of  the  fact  that  their  property  becomes  mortgaged  in  pay- 
ment of  such  bonds,  making  them  necessary  parties. 

Bonds  of  corporations  constitute  a  variety  of  obliga- 
tions, and  are  widely  different  in  character  and  value.  In 
the  case  of  railroads,  bonds  are  issued  against  the  main 
line  and  branches,  against  the  securities  in  their  posses- 
sion, against  its  rolling  stock  and  equipment,  and  against 
its  present  or  future  earnings.  In  some  cases  bonds  are 
secured  by  little,  if  anything,  besides  the  promise  and 
ability  of  the  issuing  corporation  to  pay. 

The  bonds  of  gas,  telegraph,  and  electric  companies  are 
somewhat  less  complex  and  fewer  in  kind  than  those 
issued  by  railroad  companies. 

The  denomination  and  nature  of  a  bond,  name  of  com- 
pany issuing  same,  rate  of  interest,  kind  of  coin  in  which 
it  is  to  be  redeemed,  and  the  date  of  payment  of  principal 
are  generally  stated  in  its  title,  thus : 

"  $1000.     Railroad  Co.      First  Mortgage,  5  %  Gold  Bond,  Due 

1903." 


220         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

Also  the  name  of  the  guaranteeing  company,  when  the 
bond  is  guaranteed  by  another  company. 

Among  the  kinds  of  bonds  dealt  in  on  the  New  York 
Stock  Exchange  are  the  following  :  First  Mortgage  Bonds, 
Second  Mortgage  Bonds,  Third  Mortgage  Bonds,  First, 
Second,  and  Third  Consolidated  Mortgage  Bonds,  In- 
come, First,  Second,  and  Third  Preference  Bonds,  Col- 
lateral Trust  Bonds,  Debenture  Bonds,  General  Mortgage 
Bonds,  Convertible  Bonds,  Sinking  Fund  Bonds,  Improve- 
ment and  Extension  Bonds,  Car  Trust  Bonds. 

First  Mortgage  Bonds. — As  the  term  implies,  these 
bonds  constitute  a  first  lien  upon  the  property  of  the 
company  which  issues  them,  that  is,  upon  all  property 
actually  owned  by  the  company  at  the  time  when  the 
issue  is  made.  In  case,  however,  of  the  future  absorption 
of  other  properties,  a  question  naturally  arises  as  to  the 
right  of  the  bondholders  under  the  clauses  generally  con- 
tained in  first  mortgage  bonds,  constituting  the  bond  a 
first  lien  "  upon  all  property  now  owned  or  hereafter  ac- 
quired," etc.  When  this  provision  is  made  there  can  be 
no  doubt  as  to  the  rights  of  the  holders  of  the  first  mort- 
gage bonds,  provided  that  in  future  acquirements  of  other 
companies  the  property  of  such  companies  has  not  been 
placed  under  a  mortgage  issued  prior  to  its  absorption. 
In  the  latter  case  the  previous  mortgage  existing  on  the 
property  acquired  cannot  be  superseded  by  that  of  the 
company  which  absorbs  it.  Thus,  in  the  case  of  many  of 
the  larger  railway  systems,  we  see  mortgages  which  one 
not  familiar  with  the  properties  would  assume  to  be  a  first 
lien  upon  the  entire  plant,  but  which  are  really  a  first 
mortgage  on  only  a  portion  of  the  system. 

Second  and  Third  Mortgage  Bonds,  in  view  of  the 
above,  need  no  description  here.  The  claims  of  holders 
under  these  mortgages  naturally  coming  in  proper  se- 
quence. It  is  scarcely  necessary  to  add  that  when  such 
mortgages  exist  the  interest  thereon  is  paid  after  that  of 
the  first  mortgage  has  been  satisfied. 


STOCKS,   BONDS,    ETC.  221 

Consolidated  Mortgage  Bonds  are  generally  issued  to 
take  up  and  fund  the  prior  bonds  existing  on  one  or  more 
parts  of  a  system,  but  unless  they  possess  a  greater  mar- 
ketable value  than  is  possessed  by  the  bonds  they  are  de- 
signed to  replace,  the  holders  of  the  other  bonds  will  not 
part  with  them.  A  consolidated  mortgage  bond  can  only 
become  a  first  lien  on  the  assets  and  earnings  of  a  prop- 
erty by  the  retirement  of  prior  mortgages.  Many  com- 
panies, in  issuing  these  bonds,  retain  in  their  treasuries  a 
certain  portion  for  the  purpose  of  retiring  previous  bond 
issues,  but  as  these  prior  bondholders  are  under  no  legal 
obligation  to  make  such  exchange,  so  long  as  they  refuse 
so  to  do  consolidated  mortgage  bonds  constitute  only  a 
subsequent  lien  on  the  property  and  earnings. 

Second  Consolidated  Bonds  are  issued  by  some  corpora- 
tions, and  their  bondholders  are  subsequent  lienors  to  the 
first  consolidated  bondholders,  in  the  same  manner  that 
the  second  mortgage  bondholder  comes  after  the  first 
mortgage  bondholder. 

Income  Bonds. — As  indicated  by  their  name,  are  usually 
secured  by  a  mortgage  on  the  earnings  or  income  of  a 
corporation  after  the  payment  of  prior  claims  thereon. 
When  secured  by  collateral  they  are  known  as  "  Collateral 
Income  Bonds."  Being  frequently  issued  without  a  mort- 
gage or  some  actual  present  security  for  their  ultimate  re- 
demption, a  sinking  fund  oftentimes  is  created  for  that 
purpose.  These  bonds  are  frequently  nothing  more 
than  a  promissory  note  of  the  issuer,  with  coupons  at- 
tached, bearing  a  certain  rate  of  interest  payable  at  a 
specified  date,  in  which  case  they  are  wholly  dependent 
for  their  marketable  value  upon  the  earning  capacity  of 
the  company. 

Income  bonds,  in  common  with  all  other  bonds,  being 
a  prior  lien  on  the  earnings  of  a  corporation  to  that  of  any 
stock,  often  seriously  decrease  the  value  of  such  stock  by 
diminishing  the  amount  of  earnings  applicable  for  divi- 


222         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

dends  thereon.  In  the  case  of  St.  John  vs.  Erie  Railroad, 
it  was  sought  by  the  preferred  stockholders  through  the 
courts  to  compel  the  road  to  continue  the  payment  of 
dividends  on  their  stock,  but  the  Court  took  the  ground 
that  the  preferred  stockholders,  having  voted  for  the  in- 
curring of  this  obligation,  having  ratified  the  action  of  the 
Board  of  Directors,  and  having  used  the  money  for  bet- 
terments, i.  e.,  for  their  own  benefit,  were  estopped  from 
disclaiming  the  obligation,  and  that  dividends  on  their 
stock  could  only  be  paid  after  the  payment  of  interest  on 
these  bonds. 

Collateral  Trust  Bonds. — As  their  name  implies,  these 
bonds  are  issued  against  collateral  deposited  with  a  trus- 
tee (most  commonly  some  trust  company),  giving  the  trus- 
tee power  to  sell  the  collateral  and  redeem  the  bonds  upon 
failure  of  the  issuer  to  fulfil  the  conditions  undertaken. 

Collateral  trust  bonds  consist  of  two  sorts ;  first,  the 
"  Collateral  Trust,"  where  specific  collateral  is  placed  in 
the  hands  of  a  trustee  to  insure  the  performance  by  the 
corporation  issuing  these  bonds  of  the  payment  of  interest 
and  principal  when  due.  This  collateral  cannot  be  changed 
or  converted.  And  secondly,  *'  Convertible  Collateral 
Trust  Bonds,"  in  which  collateral  is  placed  in  the  hands 
of  the  trustee  for  the  same  purpose  as  in  the  case  of  col- 
lateral trust  bonds,  but  which  collateral  may  be  exchanged 
or  converted  at  the  option  of  the  issuer  with  the  consent 
of  the  trustee  or  bondholders.  The  collateral  deposited 
to  secure  both  bonds  usually  consists  of  the  securities  of 
other  companies  possessed  by  the  issuers  of  such  bonds. 

Often,  in  addition  to  the  collateral  deposited  with  the 
trustee,  a  mortgage  is  made  of  a  certain  part  of  the  prop- 
erty and  assets  of  the  corporation  and  given  as  further 
security. 

For  several  reasons  a  convertible  collateral  trust  bond 
would  seem  to  be  a  more  desirable  bond  than  an  in- 
convertible one,  first,  because  the  inconvertible  bond  is 


STOCKS,   BONDS,   ETC.  22$ 

secured  by  an  unchangeable  security  which  may  depreci- 
ate in  value,  when  the  holders  of  such  bonds  could  not 
call  upon  the  issuers  to  deposit  further  security,  nor  by 
the  terms  of  the  bond  and  mortgage  could  the  issuers 
take  advantage  of  any  increase  in  the  market  value  of  the 
collateral,  to  dispose  of  it  to  their  own  or  the  bondholders' 
benefit.  Of  course  it  is  true  that  in  the  case  of  converti- 
ble collateral  the  security  is  subject  to  the  same  deprecia- 
tion, but  here  advantage  may  be  taken  of  any  appreci- 
ation in  the  collaterals,  and  other  collaterals  greater  in 
value  may  be  purchased,, or  should  the  collateral  be  sold, 
the  proceeds  of  such  sale  can  be  deposited  with  the  trustee 
to  take  up  a  certain  portion  of  such  bonds.  Convertible 
collateral  bonds  frequently  contain  a  provision  giving  the 
company  the  right  to  redeem  them  at  a  given  price  after 
a  certain  number  of  years. 

The  value  of  a  collateral  trust  bond,  either  convertible 
or  inconvertible,  like  that  of  any  other  bond,  depends 
upon  the  collateral  by  which  it  is  secured  and  the  earn- 
ing capacity  of  the  issuer.  These  bonds  are  frequently 
issued  upon  the  absorption  by  one  corporation  of  one  or 
more  smaller  companies. 

Debenture  Bonds. — A  debenture  bond  is  difficult  to  de- 
fine exactly.  It  is  generally  considered  to  be  little  more 
or  less  than  a  note  given  by  a  company — a  promise  to 
pay.  In  the  case  of  the  debentures  issued  by  the  Chicago 
&  Northwestern,  due  1909  and  1933,  respectively,  and  pay- 
ing 5  per  cent,  interest,  it  is  provided  that  "  any  future 
mortgage  of  the  company,  excepting  any  mortgages  for 
the  enlargement,  betterment,  or  extension  of  the  com- 
pany's property,  shall  include  these  debentures." 

A  debenture  bond  may  be  a  general  lien  on  the  prop- 
erty of  a  company,  and  like  an  income  bond  it  generally 
contains  specific  provisions  for  liens  on  certain  property 
and  assets  of  a  company,  subject  to  the  rights  of  prior 
mortgages. 


224         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

In  some  States,  where  the  laws  in  regard  to  mortgages 
are  onerous,  a  debenture  is  issued  by  a  company  in  prefer- 
ence to  a  second  or  third  mortgage.  As  will  be  seen  in 
the  case  above  cited,  they  are  also,  in  some  instances,  pro- 
tected from  being  superseded  by  future  mortgages,  and 
must  be  included  therein.  Debenture  bonds  frequently 
contain  a  sinking-fund  clause. 

Like  all  other  obligations,  their  value  depends  upon 
the  character  and  standing  of  the  corporations  issuing 
them,  and  while  in  some  cases  they  may  represent  little 
or  nothing,  when  issued  by  companies  of  high  standing 
they  are  desirable  investments. 

These  bonds  are  also  largely  issued  by  mortgage  and 
debenture  companies,  and  are  generally  secured  by  the 
placing  of  mortgages  given  to  the  issuing  company  to 
secure  loans  on  real  estate,  in  the  hands  of  a  trustee, 
and  constitute  the  collateral  on  which  these  bonds  are 
issued. 

General  Mortgage  Bonds. — As  the  name  implies,  they 
are  a  general  mortgage  on  the  property  of  a  company. 
Like  a  consolidated  bond,  they  may  be  a  first  lien  on  one 
portion  of  a  system,  a  second  on  another,  and  so  on.  The 
value  of  a  bond  of  this  character  can  be  ascertained  only 
by  knowing  to  what  extent  prior  mortgage  liens  exist,  and 
the  value  and  earning  power  of  the  property  by  which  it 
is  issued  and  secured. 

Sinking  Fund. — Provision  may  be  made  in  any  bond 
for  the  creation  and  accumulation  of  a  sinking  fund  with 
which  to  redeem  such  bond  at  maturity.  This  fund  is 
generally  accumulated  by  the  setting  aside  each  half  year 
or  year  of  an  amount  equal  to  a  certain  per  cent,  of  the 
issue  of  bonds  which  it  is  created  to  pay.  It  constitutes 
a  contract  on  the  part  of  the  issuer  with  the  lender,  is  an 
obligation  as  binding  upon  the  issuer  as  provision  for  the 
payment  of  coupons,  and  must  be  provided  for  out  of  the 
earnings  of  the  company. 


STOCKS,   BONDS,   ETC.  22$ 

Redemption  before  Maturity. — A  clause  reserving  to 
the  company  the  right  to  redeem  after  the  expiration  of 
a  certain  time  and  before  maturity  may  be  incorporated 
in  any  bond. 

Many  bonds,  on  account  of  the  incorporation  of  these 
various  features,  can  hardly  be  designated  as  belonging 
to  a  particular  class,  but  partake  in  some  respects  of  the 
nature  of  several  different  classes  of  bonds. 

Improvement  and  Extension  Bonds. — These  bonds  are 
issued  against  improvements,  betterments,  additions,  ex- 
tensions, etc.  In  the  case  of  extensions  they  may  be  a 
first  lien  upon  the  extension  itself.  They  are  guaranteed 
by  the  company  under  whose  name  they  are  issued..  Some 
of  these  bonds,  when  they  represent  the  outlay  of  money 
for  permanent  improvements  and  betterments,  are  con- 
sidered an  excellent  investment.  On  the  other  hand,  as 
is  too  often  the  case,  unfortunately,  bonds  of  this  class 
are  issued  to  cover  expenditures  which,  properly,  should 
have  been  chargeable  to  "  operating  expenses,"  and  were 
not  so  charged  by  reason  of  reckless  or  incompetent 
management. 

Car  Trust  Bonds. — These  bonds  are  secured  by  a  mort- 
gage on  the  cars  of  the  company  named  therein,  and  in 
case  of  the  failure  of  the  maker  to  meet  the  payments  or 
perform  the  obligations  therein  incurred,  the  holders  may 
seize  the  cars  thereby  mortgaged.  They  are  generally 
issued  by  Car  Trust  or  Rolling  Stock  companies. 

Remarks. — In  the  foregoing  pages  we  have  endeavored 
to  give  a  brief  description  of  the  bonds  principally  dealt 
in  on  the  New  York  Stock  Exchange  and  among  financial 
institutions  and  investors.  It  is  not  our  province  to  de- 
fine the  exact  legal  status  of  the  different  kinds  of  bonds ; 
that  can  only  be  determined  by  experienced  lawyers. 
The  exact  rights  of  the  holder  of  a  general  or  consoli- 
dated, an  income  or  debenture  bond,  depend  upon  many 
circumstances  and  conditions,  the  laws  of  the  State  or 


226         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

States  under  which  the  mortgagor  is  organized,  the 
amount  covered  by  prior  mortgages,  and  the  provisions 
of  the  bond  itself. 

Many  bonds  partake  of  the  nature  of  several  classes — 
thus  a  First  Consolidated  Sinking  Fund,  a  General  Con- 
solidated. A  General  or  an  Income  Bond  wherejio  sec- 
ond mortgage  exists  on  a  property  may  be  practically  on 
the  same  footing  as  a  second  mortgage  on  another  prop- 
erty. In  many  cases  a  first  mortgage  is  little  better  than 
worthless — in  other  instances  a  Debenture  Bond  may  sell 
at  a  premium. 

Some  of  our  large  corporations  have  so  great  a  mania 
for  issuing  new  obligations  that  it  becomes  difficult  to  in- 
vent a  proper  title  for  all  of  their  bonds.  It  may  be  stated 
as  a  general  rule,  however,  that  very  few  corporations,  and 
none  of  high  standing,  issue  bonds  which  in  their  nature 
conflict  with  one  another;  thus  we  seldom  see  a  consoli- 
dated mortgage  bond  and  a  general  mortgage  issued  on 
the  same  property,  or  second  and  third  mortgages  where 
a  consolidated,  a  collateral,  or  a  general  mortgage  exists. 
In  the  first  place  the  laws  of  many  States  seek  to  prevent 
confusion  of  rights  ;  in  the  second,  and  what  is  more  im- 
portant to  the  companies,  the  investing  public  will  not 
purchase  at  a  good  price  securities  on  whose  title  a  cloud 
rests. 

Certificates  of  Indebtedness  (Floating  Debts). — Certifi- 
cates of  Indebtedness  are  frequently  issued  by  corpora- 
tions as  evidence  of  their  floating,  accrued,  unfunded 
debts.  The  holders  of  these  certificates  possess  a  claim 
on  the  property  and  assets  of  the  company  for  the  amount 
stated  in  such  certificates,  and  if  it  is  not  paid  within  the 
time  named  they  may  apply  for  the  appointment  of  a 
receiver. 
Trust  Company  Receipts,  Certificates  of  Deposit,  etc. 

Trust  Companies'  receipts  and  certificates  of  deposit, 
although  securities  which  are  of  a  temporary  nature,  re- 


STOCKS,   BONDS,  ETC.  22J 

quire  a  brief  description,  as  they  are  often  listed,  bought, 
and  sold  on  the  Stock  Exchange  the  same  as  securities  of 
a  more  permanent  nature. 

The  certificates  of  deposit  usually  represent  the  deposit 
of  securities  under  some  plan  for  the  readjustment,  con- 
solidation, or  reorganization  of  properties,  such  securities 
being  held  in  trust  until  the  same  has  been  effected. 

The  receipt  by  the  trustee  to  the  depositor  for  the  se- 
curity deposited  with  it  enable  such  depositor  to  avoid 
the  inconvenience  and  loss  which  he  might  suffer  from  in- 
ability to  use  the  security  so  deposited  ;  the  title  to  such 
security  being  transferable  by  the  holder  of  the  certificate, 
or  it  may  be  used  by  the  holder  as  collateral  in  the  secur- 
ing of  a  loan. 

Receivers'  Certificates. 

Once  a  property  is  placed  under  the  management  of  a 
receiver,  it  is  in  the  hands  of  the  Court  under  whose 
jurisdiction  the  receivership  has  been  granted. 

The  rules  which  ordinarily  apply  to  the  financiering  of 
a  corporation  as  regards  its  stock  and  bonds  may,  at  the 
will  of  the  receiver,  if  approved  by  the  Court,  be  set 
aside.  The  receiver  operates  the  property,  under  the 
direction  of  the  Court,  for  the  benefit  of  its  security 
holders. 

Receivers'  Certificates  are  issued  for  the  purpose  of  ob- 
taining money  for  the  company,  and  are  seldom  resorted 
to  except  in  cases  of  absolute  necessity  or  of  great  emer- 
gency. When  a  company  is  practically  bankrupt  and  un- 
able to  either  sell  or  obtain  a  loan  upon  its  assets  or 
securities  ;  when  its  plant,  or  road-bed  and  equipment,  as 
the  case  may  be,  is  in  such  condition  as  to  render  opera- 
tion unsafe  or  impracticable  ;  or  when  payments  for 
rentals,  loans,  cars  necessary  to  conduct  traffic,  etc.,  must 
be  made,  otherwise  involving  disintegration  of  its  system, 
or  still  further  and  more  disastrous  losses  in  earnings,  it 


228         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

then  becomes  necessary  to  issue  these  certificates.  They 
must  be  approved  by  the  Court,  and  if  objection  is  made 
to  their  issuance  by  security  holders,  a  hearing  is  granted 
their  attorney  or  counsel  before  such  approval  is  granted. 

When  receivers'  certificates  have  been  duly  approved 
and  issued,  they  take  precedence  over  every  other  obliga- 
tion of  a  company,  first  mortgage  bonds  included.  They 
constitute  a  first  lien  upon  its  earnings  (excepting  only  the 
wages  of  employees  and  necessary  expenses  of  operation), 
and  upon  its  property. 

In  the  face  of  any  determined  opposition  from  holders 
of  first  mortgage  bonds  or  other  securities  of  the  company, 
and  the  submitting  of  evidence  that  such  issue  of  certifi- 
cates is  unnecessary,  their  issue  will  hardly  be  allowed. 
They  seldom  cover  an  amount  large  enough  to  jeopardize 
or  imperil  the  rights  of  bondholders  ;  and,  as  stated  above, 
are  issued  only  to  prevent  further  and  greater  losses  which 
would  ensue  from  the  lack  of  funds  which  they  are  in- 
tended to  raise. 

These  certificates,  even  when  put  forth  by  the  receiver 
of  the  most  hopelessly  overburdened  and  overmortgaged 
company,  are  generally  considered  a  perfectly  safe  invest- 
ment by  the  most  conservative  financiers. 

Investment  Securities. 

The  United  States,  the  different  States,  counties, 
townships,  cities,  villages,  and  school  districts  issue  bonds 
payable  at  a  specified  date,  on  the  principal  of  which  in- 
terest is  paid  at  the  rate  therein  specified.  These  bonds 
are  not  secured  by  a  mortgage  on  any  real  present  value, 
and  their  worth  consists  entirely  in  the  ability  of  the 
issuer  through  its  taxing  power  to  meet  the  obligations 
incurred. 

States  and  cities  issue  also  refunding  bonds,  which  are 
bonds  to  refund  either  other  bonds,  or  to  secure  funds  to 
provide  for  the  payment  of  outstanding  obligations.  The 


STOCKS,   BONDS,   ETC.  22$ 

Federal  Government,  State  governments,  city  and  county 
governments  have  also  in  many  instances  issued  bonds  to 
assist  in  corporate  enterprises  of  a  semi-public  nature,  such 
as  the  building  of  bridges,  the  laying  of  railroads,  the 
erection  of  waterworks,  etc. 

Many  cities  issue  bonds  to  provide  for  improvements ; 
and  some  cities  issue  special  assessment  bonds,  chargeable 
against  the  abutting  property.  By  way  of  illustration  :  if 
they  want  to  pave  a  street,  or  make  other  improvements 
of  a  local  character  in  a  particular  part  of  the  city,  the  city 
issues  bonds  chargeable  against  the  property  in  the  dis- 
trict benefited,  but  not  against  the  whole  city ;  the  city 
merely  acting  as  agent  for  the  collection  and  payment  of 
interest  and  principal. 

Many  of  the  States  and  cities  issue  Interest  Warrants, 
which  are  payable  within  a  given  time,  bearing  a  specified 
rate  of  interest,  and  are  issued  to  provide  needed  funds. 

These  warrants  are  either  paid  at  maturity  or  funded  in 
bonds  by  their  makers. 


CHAPTER  XIII. 

Commercial  Houses — Commercial  Agencies. 

Commercial  Houses. — In  order  to  form  any  just  esti- 
mate of  the  financial  operations  of  any  large  city,  and  in 
fact  of  the  financial  institutions,  properly  so-called,  there- 
in, it  is  necessary  that  we  should  have  some  adequate 
idea  of  the  method  by  which  the  business  of  our  larger 
commercial  houses  is  conducted.  While  it  is  true  that 
the  great  variety  of  business  in  which  these  houses  are 
engaged  necessitates  more  or  less  change  in  detail,  the 
principles  governing  the  management  of  the  financial 
part  of  their  business  is  practically  the  same  in  all  well 
conducted  houses. 

It  will  be  necessary,  however,  to  give  some  brief  outline 
of  the  method  by  which,  first,  the  indebtedness  is  created 
by  the  selling  of  goods,  before  we  come  to  the  indebted- 
ness itself,  which  constitutes  the  primary  element  in  the 
finances  of  a  house,  and  leads  to  their  first  dealings  with 
financial  houses.  To  proceed  regularly,  we  will  first  con- 
sider the  system  under  which  the  house  obtains  possession 
of  the  goods  which  it  sells. 

All  large  houses  are  divided  primarily  into  what,  for 
want  of  a  better  word,  will  have  to  be  termed  "  depart- 
ments." One,  the  Buying  Department,  through  which 
all  the  goods  sold  by  said  house  are  purchased  from  vari- 
ous sources,  and  the  other  the  Selling  Department.  Both 
of  these  departments,  according  to  the  magnitude  of  the 


COMMERCIAL  HOUSES.  23! 

business,  are  of  course  further  divided  into  sub-depart- 
ments. 

Buying  Department. — This  department  has  charge  of 
the  goods  purchased  by  the  house,  and  is  usually  presided 
over  by  some  member  of  the  firm,  who  is  supposed  to  be 
particularly  familiar  with  the  character,  quantity,  and 
quality  of  goods  which  have  the  readiest  sale,  and  in 
which  the  house  most  extensively  deals.  In  this  depart- 
ment are  employed  numerous  buyers,  familiar  with  the 
market  prices  of  the  particular  lines  of  goods  which  they 
have  to  buy,  and  whose  duty  it  is  to  buy  such  goods  as 
their  firm  or  house  may  from  time  to  time  require,  at  the 
best  possible  prices,  and,  if  occasion  offers,  to  purchase 
such  goods  at  particularly  low  prices,  in  anticipation  even 
of  the  requirements  of  their  house.  These  goods  are,  ac- 
cording to  the  finances  of  the  house  or  according  to  the 
probabilities  of  immediate  or  remote  sale,  purchased  for 
cash  or  on  time,  it  being  the  policy  of  most  houses  to  pur- 
chase for  cash  only  those  goods  on  which  they  receive  a 
discount  for  cash,  or  goods  which  always  have  a  steady  or 
quick  market.  As  a  rule,  thirty  days  is  considered  cash. 
These  goods,  on  delivery,  are  received  by  the  house  and 
assigned  to  the  different  departments  for  which  purchased. 
Each  department  is  charged  with  the  amount  of  goods  so 
delivered,  and  credited  with  the  amount  sent  out  by  them, 
the  difference  between  the  price  paid  and  the  price  re- 
ceived for  such  goods  showing  the  profit  or  loss  of  that 
department. 

Selling  Department. — The  business  of  most  of  the 
larger  houses  is  largely  secured  through  travelling  sales- 
men, to  each  of  whom  a  certain  territory  is  allotted.  It 
is  the  business  of  these  salesmen  to  travel  from  place  to 
place  endeavoring  to  secure  orders  for  such  goods  as  their 
houses  sell,  and  not  only  are  they  credited  with  a  com- 
mission on  all  goods  sold  by  them  personally,  but  are 
also  generally  credited  with  a  commission  on  goods  sold 


232         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

to  persons  residing  within  their  territory.  Some  houses 
employ  travelling  salesmen  only  on  salary,  others  on  both 
salary  and  commission. 

Of  course  all  of  the  large  houses  have  in  their  stores  a 
number  of  salesmen  on  salary,  on  whose  sales  no  commis- 
sion is  allowed,  with  which  the  travelling  salesman  has 
nothing  to  do,  and  in  the  amount  of  which  sales  he  has 
no  interest. 

Upon  the  receipt  of  orders  not  paid  for  in  cash,  either 
from  travelling  salesmen  or  in  the  store,  the  order  is  sub- 
mitted first  to  the  Credit  Department,  which  investigates 
the  standing,  ability  to  pay,  and  general  promptness  in 
meeting  his  obligations  of  the  purchaser.  This  informa- 
tion is  usually  obtainable  from  the  mercantile  agencies, 
the  chief  of  which  are  the  R.  G.  Dun  &  Co.  and  the  Brad- 
streets,  which  publish  periodically  reports  of  the  standing 
of  all  merchants  in  the  country  whose  assets  exceed  one 
thousand  dollars.  -But  as  these  reports  are  only  published 
quarterly,  it  often  happens  that  the  information  given  in 
their  publications  is  several  months  old,  and  more  recent 
information  is  desirable.  When  such  is  needed,  the  credit 
department  asks  for  a  statement  up  to  date  of  the  condi- 
tion of  such  purchaser,  Avhich  information  is  usually  fur- 
nished, but  sometimes  the  agencies  are  necessarily  delayed 
in  supplying  it.  A  well-managed  credit  department  will 
not  rely  entirely  upon  the  reports  of  mercantile  agencies, 
knowing  that  often  the  reports  given  to  these  agencies  are 
highly  colored,  and  while  not  necessarily  dishonest  and 
fraudulent,  are  liable  to  be  influenced  by  the  expectations 
of  the  persons  of  whom  such  reports  are  desired,  but  will 
make  inquiry  among  the  other  houses  which  they  think 
have  probably  dealt  with  the  purchaser,  and  if  no  satisfac- 
tory information  is  obtained  either  from  the  agencies  or 
from  their  brother  merchants,  a  letter  is  written  the  pur- 
chaser, asking  for  letters  of  reference  to  persons  with 
whom  he  has  dealt,  and  usually  a  letter  is  likewise  written 


COMMERCIAL  HOUSES.  233 

to  the  travelling  salesman,  asking  for  what  information  he 
can  furnish.  If  this  information  is  not  satisfactory,  and 
the  ability  of  the  purchaser  to  pay  is  doubted,  a  careful 
credit  department  will  immediately  recommend  that  the 
order  be  not  filled,  and  this  ends  the  matter.  If,  however, 
the  purchaser's  credit  is  good,  and  his  obligations  are 
promptly  met,  the  order  is  next  submitted  to  the  order 
clerk,  by  whom  the  prices  at  which  the  goods  were  sold 
are  approved,  or  not.  If  not  approved,,  the  salesman  is 
usually  called  to  account  for  selling  goods  below  the 
prices  given  him  in  his  weekly  price-list,  which  is  compiled 
by  these  order  clerks  under  the  direction  of  some  member 
of  the  firm  ;  or  sometimes  on  their  own  responsibility 
alone,  and  the  order  is  filled  or  not,  according  as  the 
prices  are  acceptable  or  otherwise. 

Assuming  the  price  to  be  satisfactory  and  the  credit 
good,  the  order  is  next  sent  to  the  various  departments 
and  the  goods  collected  together  in  the  Packing  Depart- 
ment, where  they  are  packed  for  shipment.  The  packages 
are  then  sent  down  to  the  Shipping  Department,  where 
the  shipping  clerk  ships  the  same  to  their  destination. 

From  the  various  departments  from  which  the  goods 
are  drawn  are  sent  to  the  Counting-House  Department  a 
list  of  the  goods,  and  these  are  entered  and  invoiced  by 
the  entry  clerks,  who  make  up  bills,  which  are  mailed  on 
the  date  of  the  shipment  of  the  goods  or  at  the  end  of 
the  month,  according  to  the  practice  prevailing  in  the  par- 
ticular house  or  the  arrangement  between  the  purchaser 
and  the  seller.  Next,  the  entries  of  the  entry  clerks  in 
total  are  entered  to  the  debit  of  the  purchaser  by  the 
ledger  clerks,  in  the  ledger  account  of  the  purchaser. 

At  the  end  of  the  month,  or  at  the  time  agreed  upon, 
drafts  are  drawn  by  the  house  upon  the  persons  to  whom 
these  goods  have  been  shipped.  These  drafts,  according 
to  the  necessities  of  the  drawer,  are  deposited  for  collec- 
tion or  discount  in  the  bank  with  which  such  firm  deals, 


234         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

and  are  there  entered  for  collection  or  to  the  credit  of  the 
house  and  sent  by  the  bank  to  their  different  agents 
throughout  the  country.  Such  drafts  as  are  not  paid 
upon  presentation  are  returned  to  the  bank,  charged 
against  the  firm's  account,  if  previously  credited,  and  re- 
turned to  the  firm,  and  have  either  to  be  made  good  by 
the  firm  or  are  charged  against  their  account,  as  stated. 

Most  of  the  large  firms  allow  a  small  discount  for  cash 
payments. 

Commercial  Agencies. 

No  more  striking  proof  can  be  adduced  of  the  change 
in  our  business  and  financial  methods  from  those  prevail- 
ing fifty  years  ago  than  the  very  existence  of  these  agen- 
cies, now  so  important  a  factor  in  our  commercial  life.  Now 
all  careful  business  men  make  a  most  thorough  inquiry  in 
regard  to  the  standing  of  the  persons  with  whom  they 
have  dealings,  and  as  this  information  is  necessarily  largely 
supplied  through  the  quarterly  reports  of  these  agencies, 
and  as  business  men  know  that  any  one  withholding  such 
information  from  them  simply  injures  himself,  they  are 
themselves  willing  generally  to  give  the  agencies  the 
information  sought  about  their  business  and  finances. 

In  this  country  there  are  two  principal  agencies,  known 
in  almost  every  village,  with  branch  offices  in  every  city 
in  the  States,  and  also  in  all  the  larger  towns.  These  com- 
panies furnish,  in  addition  to  their  quarterly  publications 
supplied  each  subscriber,  information  in  regard  to  the 
present  standing  of  any  person  engaged  in  business  in  any 
part  of  the  United  States  or  Canada.  At  stated  times 
they  gather  information  as  to  the  standing  of  persons  in 
their  district,  which  in  a  condensed  form  is  contained  in 
the  agencies'  periodical  publications.  Where  later  and 
immediate  information  is  needed  they  also  obtain  that, 
and  forward  it  to  the  ofHce  or  person  seeking  the  same. 


COMMERCIAL  AGENCIES.  23$ 

Almost  every  trade  also  has  its  special  agency,  which 
devotes  its  energies  entirely  to  that  particular  trade. 

Commercial  agencies  do  not  confine  their  attention 
solely  to  the  gathering  and  supplying  of  information,  but 
are  also  large  collection  agencies,  besides  which  their 
reports  of  the  condition  of  business,  crops,  etc.,  etc.,  are 
very  generally  relied  on  by  both  the  public  and  the  press. 

Bradstreet's  and  R.  G.  Dun  &  Co.  are  the  agencies  re- 
ferred to,  each  of  whom  have  offices  on  Broadway,  within 
a  couple  of  blocks  of  each  other.  They  issue  to  their 
subscribers  quarterly  a  large  book,  conveniently  arranged, 
giving  the  names  of  all  men  in  every  part  of  the  country, 
doing  a  class  of  business  in  which  they  would  probably 
need  credit,  and  giving  their  ratings,  as  indicating  by  let- 
ters the  amount  a  man  or  firm  is  worth  is  termed.  Should 
later  information  than  that  contained  in  the  last  publica- 
tion be  desired,  either  of  these  agencies  will  make  every 
effort  to  furnish  the  same  to  a  suscriber. 

While  it  may  be  said  that  credits  extended  nowadays 
are  largely  upon  the  strength  of  these  reports,  yet  most 
of  the  wholesale  houses  and  banks  have  credit  depart- 
ments of  their  own  in  charge  of  a  man  whose  principal 
business  is  to  be  thoroughly  posted  on  the  credits  of  the 
people  with  whom  they  deal  or  are  likely  to  deal,  and 
these  "  credit  men  "  often  seek  information  from  each 
other,  when  not  satisfied  with  that  given  by  the  agencies. 
Most  large  extenders  of  credit  are  subscribers  to  both 
agencies. 

The  agencies  require  that  books  furnished  subscribers 
shall  be  used  only  by  them  or  their  clerks,  and  any  infor- 
mation furnished  a  subscriber  shall  be  used  only  for  his 
benefit ;  but  these  requirements  are  principally  honored 
in  their  non-observance. 

To  gather,  arrange,  condense,  print,  and  disseminate 
the  information  collected  from  every  town  and  village  in 
the  United  States  and  Canada,  and  about  almost  every 


236         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

merchant  or  tradesman  in  each  town,  requires  a  vast  num, 
her  of  employees  scattered  all  over  the  country,  and  this 
each  of  the  larger  agencies  has. 

Should  information  furnished  by  an  agency,  except 
where  obtained  from  the  injured  person,  be  injurious  to 
the  credit  of  a  person,  and  such  information  be  proven  to 
be  false,  the  courts  have  held  that  he  has  a  cause  of  action 
against  the  agency  for  the  damage  he  has  sustained 
through  the  injury  thereby  done  to  his  credit.  Or  should 
credit  be  extended  on  the  strength  of  information  given 
by  a  commercial  agency,  which  information  was  clearly 
inaccurate,  and  the  agent  of  such  agency  could  easily  have 
discovered  it  to  be  inaccurate,  the  agency  can  be  held  for 
the  damage  thereby  suffered. 


CHAPTER  XIV. 

Transmission  and  Remittance  of  Money— Money  Orders — Cheque  Banks — 
Commercial  Bills — Cable  and  Telegraph  Transfers. 

Transmission  and  Remittance  of  Money. 

PERHAPS  the  greatest  achievement  of  modern  business 
and  banking  is  the  safety  and  celerity  with  which  money 
can  be  transmitted  from  person  to  person  and  from  place 
to  place,  although,  owing  to  the  high  state  of  develop- 
ment of  the  financial  systems  of  the  world,  the  actual 
shipment  of  money  has  been  minimized  to  an  extent  that 
but  few  of  us  realize. 

While  a  great  many  transactions  that  once  required  the 
shipment  of  money  are  now  adjusted  by  bills  of  exchange, 
yet  there  is  still,  especially  in  domestic  transactions  in- 
volving small  amounts,  a  necessity  for  the  sending  of 
the  money  itself ;  and  the  certainty  with  which  a  dollar  or 
a  hundred  million  dollars  may  be  transported  has  prob- 
ably done  more  than  anything  else  to  steady  and  regulate 
the  finances  of  the  world.  In  this  certainty  and  quick- 
ness of  shipment  the  steam-engine  and  the  telegraph  have 
been  the  most  potent  factors,  the  telegraph  putting  the 
whole  financial  world  in  instant  communication,  the  steam- 
engine,  with  greater  certainty  than  has  ever  before  been 
attained  by  human  ingenuity,  delivering  the  merchandise 
of  which  the  telegraph  gave  notice. 

The  ability  of  London,  New  York,  Paris,  or  Berlin,  or, 
in  fact,  any  other  city  to  call  upon  other  cities  and  coun- 

237 


238         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

tries  of  the  world  for  aid,  and  their  power  to  instantly  ex- 
tend a  similar  accommodation,  has  been  one  of  the  most 
important  developments  of  modern  progress,  making  the 
financial  transactions  of  the  most  widely  separated  coun- 
tries almost  as  easy  and  certain  of  adjustment  and  settle- 
ment as  the  transactions  had  between  two  bankers  located 
in  the  same  city.  One  result  of  this  rapidity  and  security 
of  transmission  is  that  the  cities  or  countries  which  have 
large  amounts  of  money  seeking  investment  instantly 
come  to  the  aid  of  the  countries  in  need  of  financial 
assistance,  the  first  desiring  to  buy  and  the  second  to  sell 
or  borrow. 

The  issue  of  credits,  exchange,  is  so  intimately  con- 
nected with  the  actual  shipment  of  money  as  to  render  a 
separation  of  the  two  here  undesirable.  Nor  is  such  sep- 
aration at  all  necessary,  as  exchange  has  already  been 
treated,  and  only  reference  will  be  made  to  that  part  of 
the  transmission  of  money  which  is  accomplished,  or 
rather  the  actual  shipment  avoided  thereby. 

First,  as  to  actual  shipment  of  money,  by  which  is  meant 
the  shipment  from  one  point  to  another  of  the  money 
itself.  This  is  done  by  the  various  steamship,  transpor- 
tation, and  express  companies  in  the  same  way  that  they 
carry  other  commodities,  only  greater  safeguards  are  used 
to  insure  the  safety  of  the  money  while  in  transit. 

1.  By  registered  letter.     This  is  a  letter  containing  the 
money  to  be  remitted,  and  is  registered  and  receipted  for 
at    the    post-office.     The    receiver  of   such    letter    must 
receipt  for  the  same  upon  delivery. 

2.  By   express    companies,    who    carefully    count    the 
amount  of  money  to  be  sent,  place  the  same  in  an  envel- 
ope, and  securely  seal  the  envelope  with  sealing-wax  in 
the  presence  of  the  person   remitting.     The  envelope  is 
then  sent  to  the  person  to  whom  addressed,  who,  upon 
delivery,  must  receipt  for  the  same. 

The  fact  that  express  companies  are  known  to  be  the 


TRANSMISSION  AND   REMITTANCE   OF  MONEY.      239 

carriers  of  large  sums  of  money,  and  that  those  sums  are 
always  in  a  particular  car,  leads  to  various  train  robberies, 
usually  at  those  seasons  of  the  year  when  great  amounts 
are  remitted  from  the  Eastern  money  centres  to  the  West. 
It  would  seem  to  be  safer  to  send  money  in  ordinary 
freight  cars,  where  the  location  of  the  particular  car,  and 
the  box  or  bundle  containing  it,  which  need  not  be  even 
disclosed  to  the  trainmen  or  conductor,  would  render  its 
transit  much  more  secure  than  the  present  method, 
although,  of  course,  the  objection  would  be  that  this 
would  consume  too  much  time,  and  the  money  would  be 
earning  no  interest  during  its  transit. 

Payments  are  most  frequently  made,  not  by  the  ship- 
ment of  money,  but  by  a  transfer  of  credits.  This  has 
been  already  dwelt  upon  at  considerable  length,  and  the 
various  ways  in  which  credits  are  transferred  will  there- 
fore only  be  enumerated  here,  and  reference  made  to  the 
pages  of  this  book  setting  forth  the  same  more  in  detail. 

I.  By  post-office  order,  commonly  called  money  orders, 
which  are  divided  into  domestic  and  international  money 
orders. 

"  The  maximum  amount  for  which  a  single  money  order  may 
be  issued  at  an  office  designated  as  a  *  money  order  office '  is 
$100,  and  at  an  office  designated  as  a  'limited  money  order 
office/  $5.  When  a  larger  sum  is  to  be  sent,  additional  orders 
must  be  obtained.  But  postmasters  are  instructed  to  refuse  to 
issue  in  one  day  to  the  same  remitter,  and  in  favor  of  the  same 
payee,  on  any  one  post-office  of  the  fourth  class,  money  orders 
amounting  in  the  aggregate  to  more  than  $300,  as  such  office 
might  not  have  funds  sufficient  for  immediate  payment  of  any 
large  amount.  Fractions  of  a  cent  are  not  to  be  introduced." 

The  remitter  who  desires  to  relieve  the  payee  or  his 
indorsee  or  attorney  from  the  inconvenience  of  proving 
identity  at  the  office  of  payment,  by  the  testimony  of 
another  person,  may  do  so,  at  his  own  risk,  which  waiver 
is  stamped  on  the  order. 


240         PRINCIPLES  AND   PRACTICE   OF  FINANCE. 

"In  the  application  the  given  names  of  the  remitter  and 
payee,  or  the  initials  thereof,  should  precede  their  surnames, 
respectively.  If  the  payee  has  only  one  given  name,  it  should 
be  written  in  full,  if  known  to  the  remitter.  For  example,  the 
name  John  Jones  should  be  so  written,  and  not  as  J.  Jones. 
Observance  of  this  rule  will  tend  to  prevent  mistakes  and  delay 
in  payment." 

"  A  money  order  must  not  be  made  payable  to  more  than 
one  person  or  firm." 

"  Names  of  firms,  places,  and  streets,  as  well  as  amounts, 
should  be  written  in  full  and  in  the  plainest  manner  possible. 
As  in  many  cases  there  are  several  post-offices  of  the  same 
name  in  different  States,  the  applicant  should  be  very  careful 
to  write  legibly  the  name  of  the  State  in  which  the  office  he 
means  is  located." 

The  payee  named  in  the  order  may  endorse  it  to 
another,  but  more  than  one  endorsement  is  prohibited. 

These  orders  should  be  collected  within  a  year  from  the 
date  of  issue,  to  collect  after  which  time  it  is  necessary 
to  apply  for  a  duplicate  and  again  pay  the  amount  of  the 
original  fee. 

FEES   CHARGED   FOR   MONEY   ORDERS. 


For  orders  for  sums  not 
Over  $2.50  and  not 
"       5.00 
"      10.00           " 

"     20.00        " 
"     30.00        " 
"     40.00 
*'     50.00        '* 
44     60.00 
*'     75.00 

exceeding 
exceeding 

(4 
II 

"               ] 

$2  e.o    . 

:ents. 
« 

«  i 

i  « 
« 

5.00    . 

5 

IO.OO     . 

8 

20.00     . 
3O.OO     . 

.     10 

40.00 
50.00     . 
60.00     . 

.     15 
.        .        .18 
.     20 

75-OO      . 

25 

:oo.oo    . 

•?o 

INTERNATIONAL  MONEY  ORDERS. 

What  has  been  said  in  regard  to  domestic  money  orders 
applies,  except  as  below  stated  : 


MONEY  ORDERS.  241 

"  Remitters  will  please  take  notice  that  the  maximum 
amount  for  which  a  money  order  may  be  drawn,  payable  in 
the  United  Kingdom,  Cape  Colony,  or  British  Guiana, 
is  $50." 

"  There  is  no  limitation  to  the  number  of  international 
orders  that  may  be  issued  in  one  day  to  a  remitter,  in  favor  of 
the  same  payee." 

11  The  postmaster  must  refuse  to  issue  an  international  order 
payable  to  any  person,  if  the  surname  and  the  initial  letters  of 
that  person's  given  names  are  not  furnished  by  the  applicant, 
unless  the  payee  be  a  peer  or  a  bishop,  in  which  case  his  ordi- 
nary title  is  sufficient.  If  the  payee  be  a  firm,  the  usual  com- 
mercial designation  of  such  firm  will  suffice,  such  as  '  Baring 
Bros.,'  '  Smith  &  Son/  *  Jones  &  Co.'  " 

Rates  of  commission,  in  United  States  currency, 
charged  for  issuing  all  international  money  orders : 

For  orders  for  sums  of  $10  or  less  .....  10  cents. 

Over  $10  and  not  exceeding  $20 20  '* 

"    20     "              30 30  " 

"    30     "              40 4O  " 

"    40     "              50 50  " 

"    50            "       60 60  " 

"    60     "       "       70 70  " 

"   70             "       80 80  " 

"    80     "              90  .....  90  " 

"    90     "       "      TOO  .....  $I.OO  *' 

2.  By  check,  either  of  an  individual  or  bank,  certified 
or  uncertified.     (See  Checks.) 

3.  By  cashier's  check.     (See  Cashier's  Checks.) 

4.  By  drafts.     (See  Drafts.) 

5.  By   bills    of    exchange,    domestic    or   foreign.     (See 
Domestic  Exchange  and  Foreign  Exchange.) 

For  large  amounts  this  is  certainly  the  method  most 
generally  employed  for  the  reasons  stated  in  the  chapters 
devoted  to  those  subjects. 

16 


242         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

6.  By   certificates  of   deposit,    receipts  from  banks  or 
bankers  of  the  deposit  of  certain  sums,  made  payable  to  a 
person  designated  by  the  depositor,  and  payable  at  the 
agency  of  the  issuer.     (See  Certificates  of  Deposit.) 

7.  By  letters  of  credit.     (See  Letter  of  Credit.) 

8.  By  checks  issued  by  the  express  companies  upon  the 
plan  described  in  the  article  on  Cheque  Banks. 

9.  In  Great  Britain  and  Canada  by   checks  of  cheque 
banks.     This  method  does  not  prevail  in  this  country  to 
any  appreciable  extent. 

Cheque  Banks. — Cheque  banks  operate  almost  exclu- 
sively in  England,  where  they  were  established  more  than 
half  a  century  ago.  The  object  of  their  existence  is  to 
furnish  persons  desiring  to  remit  money  other  than  by 
post-office  orders  a  convenient  mode  for  so  doing,  the 
bank  issuing  its  check  to  the  individual,  payable  to  the 
person  named  by  him,  upon  the  payment  by  the  pur- 
chaser of  the  amount  of  the  check  plus  a  small  commis- 
sion. The  checks  of  these  banks,  whose  business  is 
confined  to  the  issuing  of  such  checks,  are  largely  used 
by  persons  not  having  bank  accounts  and  who  cannot 
therefore  send  their  own  checks,  and  who  are  not  willing 
to  take  the  risk  of  sending  bank  notes,  which  at  present 
in  England  are  not  issued  in  denominations  of  less  than 
five  pounds,  and  hence  are  not  suitable  for  the  payment 
of  smaller  amounts.  By  way  of  illustration,  a  person 
desiring  to  remit,  say  two  pounds,  will  purchase  at  a 
cheque  bank  their  check  for  that  amount  payable  to  the 
order  of  a  person  named,  and  mail  the  same  to  the  per- 
son to  whom  it  is  payable,  who  can  cash  the  same  not 
only  at  any  banker's,  but,  upon  endorsement,  at  almost 
any  tradesman's. 

After  endorsement,  these  checks  pass  from  hand  to 
hand,  just  the  same  as  any  currency.  The  check  is  so 
prepared  that  it  cannot  be  raised. 

This  system  is  very  largely  used   in  the  British  Isles, 


COMMERCIAL  BILLS.  243 

and  while  at  first  it  was  unsuccessful,  owing  to  inefficient 
management,  has  since  grown  to  enormous  proportions. 

These  banks,  however,  would  be  of  doubtful  utility  in 
this  country,  and  hence  have  obtained  but  little  foot- 
hold. 

Commercial  Bills. — Next  we  will  consider  Commercial 
Bills,  which  are  drafts  drawn  by  a  person  or  persons  in 
one  country  on  a  person  or  persons  in  another,  in  payment 
of  merchandise  received,  held  for  account  of,  or  in  transit 
to  the  persons  against  whom  they  are  drawn. 

These  bills  are  either  sent  directly  abroad  for  collection 
or  sold  by  the  drawer  to  some  dealer  in  exchange  in  his 
city,  most  frequently  the  latter.  The  price  at  which  they 
are  purchased  by  the  dealers  is  governed  by  the  condition 
of  the  exchange  market,  and  the  length  of  time  the  bills 
have  to  run.  Those  payable  on  sight  are  generally  pur- 
chased at  the  market  rate  for  exchange,  and  those  payable 
on  time  at  the  market  rate  of  the  exchange,  minus  the 
rate  of  interest  prevailing  in  the  country  where  such  bill 
is  payable,  from  the  date  of  its  purchase  to  the  time  of  its 
maturity,  which  interest  is  deducted  when  the  bill  is 
purchased.  It  follows  that  "  time  bills,"  as  they  are  called, 
are  nearly  always  sold  at  a  discount,  as  it  very  rarely 
happens  that  the  discount  on  exchange  is  so  great  as  to 
offset  the  interest  charges. 

These  bills,  when  offered  for  sale,  should  always  be 
accompanied  by  warehouse  receipt,  showing  the  storage 
of  the  goods  against  which  they  are  drawn  to  the  order  of 
the  drawee,  or  bills  of  lading  showing  the  shipment  of  the 
goods  to  the  person  against  whom  the  bill  is  made  out, 
otherwise  the  purchaser  has  no  evidence  that  the  draft  is 
drawn  against  any  real  value.  The  bill  of  lading  or  ware- 
house receipt  is  delivered  to  the  purchaser  of  the  draft, 
so  that  he  may  be  in  a  position  to  enforce  the  payment 
of  the  draft,  or  hold  the  goods,  and  sell  them  to  reimburse 
himself. 


244         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

Cable  and  Telegraph  Transfers.— The  system  of 
the  transfer  of  money  by  telegraphic  order  originated 
during  the  late  war,  and  at  first  was  confined  entirely  to 
domestic  business.  The  inception  of  the  system  seems 
to  have  been  this :  a  person  desiring  to  remit  a  sum  to 
another  at  a  distant  point,  deposited  the  amount  to  be 
remitted  with  a  telegraph  office  and  instructed  them  to 
send  an  order  by  telegraph  to  their  office  at  the  desired 
point  to  pay,  to  the  order  of  the  person  named,  the  sum 
of  money  deposited,  the  person  named  in  such  order 
being  also  sent  a  telegram,  to  call  at  the  office  and  receive 
the  same.  This  represents  the  simplest  form  of  a  transfer 
of  money,  by  telegram,  and  in  this  form  the  business  is 
carried  on  very  largely  by  telegraph  companies. 

The  availability  of  this  method  of  transfer  of  money, 
not  only  in  domestic  exchange,  but  also  in  foreign  ex- 
change, soon  became  apparent  to  bankers  and  commercial 
men,  and  if  it  could  be  applied  successfully  by  a  telegraph 
company  for  the  transfer  of  limited  amounts,  it  could 
certainly  be  applied  to  greater  advantage  by  large  bank- 
ing houses  or  bankers  having  on  hand  great  sums  of 
money.  Probably  the  next  step  in  the  development  of 
this  system  was  the  depositing  of  the  actual  money  with 
a  banker  selling  telegraphic  transfers  of  money  called 
"  cables  "  and  receiving  his  cable  order  on  his  correspond- 
ent in  another  city,  for  the  amount  purchased,  and  also  a 
cable  to  the  person  in  whose  favor  the  order  was  drawn 
apprising  him  of  such  order  and  directing  him  to  call  and 
collect  the  same.  Naturally  such  transfers  are  effected  at 
a  charge  proportionate  to  the  rate  of  exchange  then  pre- 
vailing to  the  point  on  which  the  transfer  was  issued,  to- 
gether with  the  cable  and  telegraphic  charges  necessary  to 
consummate  such  transfer. 

Telegraph  transfers  (by  which  is  meant  domestic  trans- 
fers) are  made  either  by  the  telegraph  companies  them- 
selves of  small  amounts,  and  of  larger  amounts  principally 


CABLE  AND    TELEGRAPH  TRANSFERS. 


245 


by  banks,  whereas  cable  transfers  (by  which  is  meant  the 
transfer  of  money  to  foreign  countries)  are  effected 
through  exchange  dealers,  usually  private  bankers. 

Most  papers,  in  their  commercial  news,  quote  ordinary 
exchange,  commercial  bills,  and  cable  transfers.  The 
rates  of  all  three  differ  for  the  reasons  heretofore  given  in 
this  work. 


CHAPTER  XV. 

Notes  —  Endorsements  —  Drafts  —  Bills  of  Exchange  —  Notary  Presentation  — 
Protest  —  Notice  of  Protest—  Checks  —  Course  of  Check  through  a  Bank 
—  Cashiers'  Checks  —  Certificates  of  Deposit  —  Letters  of  Credit  —  Table 
Showing  U.  S.  Treasurer's  Valuation  of  Foreign  Coins  —  Table  Giving 
Weight  of  Alloyed  and  Pure  Metal  of  Units  of  Value  of  Principal  Coun- 
tries. 

Notes.  —  A  note  is  a  written  or  a  partly  printed  and 
written  promise  made  by  one  or  more  persons  to  pay  to 
one  or  more  persons,  named  or  unnamed,  a  certain  sum 
of  money  at  a  given  date. 

Bouvier's  Law  Dictionary  defines  a  note  as  "A  written 
promise  to  pay  a  certain  sum  of  money,  at  a  future  time, 
unconditionally."  This  definition,  however,  does  not 
seem  so  comprehensive  and  explicit  as  that  first  given. 

And  as  we  are  dealing  with  notes  as  negotiable  instru- 
ments, we  will  only  consider  them  when  drawn  in  such 
form  as  to  hold  the  maker  thereof,  for  the  amount  stated 
in  such  note,  of  which  the  very  first  element  is  that  the 
note  shall  have  been  given  for  value,  hence  all  notes 
should  read  "  Value  received." 

The  following  is  the  form  of  note  generally  used  : 

"$  ........  NEW  YORK  .............  188  ____ 

"  ........  .  ............  after  date  ..........  promise  to 

pay  to  the  order  of  ...................................... 

Dollars 


value  received. 

No..  Due 


NOTES.  247 

It  is  a  well  recognized  principle  of  law  that  a  note  given 
without  consideration  cannot  be  'enforced  by  a  person 
having  knowledge  of  that  fact,  but  a  note  given,  though 
without  consideration,  may  be  enforced  by  an  innocent 
holder,  who  purchased  the  same  for  a  consideration. 

Notes  may  be  drawn  by  any  number  of  persons,  pay- 
able to  one  or  more  persons,  and  are  transferable  by 
endorsement. 

Notes  may  be  endorsed  in  some  nine  different  ways, 
each  imposing  a  different  liability  upon  the  endorser  or 
endorsers  thereof.  The  different  kinds  of  endorsements 
are  stated  with  much  brevity  and  clearness  by  Mr.  Bolles 
in  his  work  on  Practical  Banking,  which  we  take  the  lib- 
erty of  quoting. 

"  An  endorsement  may  be  (i)  in  full,  or  (2)  in  blank  ;  it 
may  be  (3)  absolute,  or  (4)  unconditional ;  it  may  be  (5)  re- 
strictive ;  it  may  be  (6)  without  recourse  on  the  endorser  ;  and 
there  may  be  (7)  joint  endorsements  of  the  instrument,  (8) 
successive  endorsements,  and  (9)  irregular  ones.  An  endorse- 
ment in  full  mentions  the  name  of  the  person  in  whose  favor  it 
is  made,  and  to  whom,  or  to  whose  order  the  sum  described  in 
the  note  is  to  be  paid.  An  endorsement  in  blank  consists 
simply  of  the  name  of  the  endorser  written  on  the  back  of  the 
instrument.  *  The  receiver  of  a  negotiable  instrument  en- 
dorsed in  blank,  or  any  bond  fide  holder  of  it,  may  write  over  it 
an  endorsement  in  full  to  himself,  or  to  another,  or  any  con- 
tract consistent  with  the  character  of  an  endorsement,  but  he 
could  not  enlarge  the  liability  of  the  endorser  in  blank  by 
writing  over  it  a  waiver  of  any  of  his  rights,  such  as  demand 
and  notice.'  By  an  absolute  endorsement  the  endorser  binds 
himself  to  pay  on  no  other  condition  than  the  failure  of  the 
prior  parties  to  do  so,  and  of  due  notice  to  him  of  their  failure, 
while  a  conditional  endorsement  contains  some  other  condi- 
tion to  the  endorser's  liability.  An  endorsement  may  be  so 
worded  as  to  restrict  the  further  negotiability  of  the  instru- 
ment ;  it  is  then  called  a  restrictive  endorsement.  The  words 


248         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

*  for  collection,'  which  are  frequently  written  on  notes  that  are 
put  in  a  bank  to  be  collected  render  the  endorsement  restric- 
tive. The  endorser  in  such  a  case  may  prove  that  he  is 
not  the  owner  of  the  note,  and  did  not  mean  to  give  a  title  to 
it  or  its  proceeds  when  collected.  Such  an  endorsement 
merely  makes  the  endorsee  agent  for  the  endorser  in  collecting 
the  note.  The  sixth  kind  is  a  qualified  endorsement,  or  en- 
dorsement without  recourse.  This  consists  in  writing  the 
words  'without  recourse,'  or  'at  the  endorsee's  own  risk  '  on 
the  back  of  the  note.  The  endorser  is  then  a  mere  assignor 
of  the  title  to  the  note,  and  is  relieved  of  all  responsibility  for 
its  payment.  A  joint  endorsement  is  made  when  a  note  is  pay- 
able to  several  persons  who  are  not  partners.  Successive  en- 
dorsements are  those  made  by  several  persons  on  a  note,  the 
legal  effect  of  which  is  to  subject  them  as  to  each  other  in  the 
order  they  endorse.  The  endorsement  imparts  a  several  and 
successive,  and  not  a  joint  obligation.  Lastly  may  be  men- 
tioned irregular  endorsements,  which  may  originate  in  various 
ways.  But  in  all  cases  an  endorser  guarantees  the  genuineness 
of  all  the  preceding  endorsements." 

It  may  be  well  to  add  that,  in  the  use  of  irregular  endorse- 
ments, a  person  placing  his  name  upon  the  back  of  a  nego- 
tiable note  or  bill  is  presumed,  in  law,  to  have  intended  to 
become  liable  as  second  endorser,  and  that  on  the  face  of 
the  paper,  without  explanation,  he  is  regarded  as  second 
endorser  and  therefore  not  liable  to  the  payee,  who  is 
supposed  to  be  the  first  endorser.  The  explanation  re- 
quired is  that  such  endorsement  was  made  for  the  sole 
purpose  of  giving  the  maker  credit  with  the  payee. 

Drafts. — A  draft  is  a  written  order  drawn  by  one  or 
more  persons  in  favor  of  one  or  more  persons  on  a  third 
person  or  persons  for  a  specified  amount  payable  at  a 
named  date. 

On  the  next  page  is  given  the  usual  form : 


DRAFTS.  249 

"  NEW  YORK,  January  10,  1893. 
"  $1000. 

"  Ten  days  after  sight  pay  to  the  order  of  John  Doe 

one  thousand  dollars  value  received 
and  charge  the  same  to  account  of 

" Smith,  Brown,  <^  Co. 
"  No.  1043. 

"To 

"  James  Stimpson  &*  Co. 

"  Brattleboro,  Vt." 

The  principal  distinction  between  a  check  and  a  draft 
is  that  a  draft  is  generally  drawn  on  some  person  or  cor- 
poration residing  or  doing  business  in  a  different  place 
from  that  in  which  the  drawer  resides,  and  is  dependent 
for  its  payment  upon  the  acceptance  of  the  person 
against  whom  it  is  drawn,  and  who  may  decline  to  accept 
or  pay  it,  and  no  criminal  liability  would  attach  to  the 
drawer,  whereas  a  check  is  drawn  only  against  a  deposit 
of  money  or  a  previously  agreed  credit,  and  the  drawer 
of  which,  should  there  be  no  funds  to  meet  it,  renders 
himself  liable  to  criminal  prosecution,  or  the  bank  or 
banker  refusing  to  pay  such  check  if  there  are  funds, 
to  a  civil  action  for  damages  for  the  injury  to  the 
drawer's  credit  and  reputation. 

After  a  draft  is  accepted  it  becomes  a  promise  to  pay 
on  the  part  of  the  acceptor,  and  he  can  be  held  thereon 
as  on  a  note. 

Drafts  constitute  the  most  common  form  of  domestic 
exchange  and  are  purchased  by  both  individuals  and 
banks  for  that  purpose. 

They  may  be  transferred  to  another  by  the  person  in 


250         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

whose  favor  they  are  drawn,  by  indorsement  in  any  of  the 
different  forms  given  in  regard  to  notes. 

When  these  drafts  are  drawn  against  a  person  to  whom 
merchandise  has  been  sold  or  consigned  they  are  known 
as  commercial  bills.  They  sometimes  take  the  name  of 
the  produce  which  they  are  drawn  against  ;  thus  we  have 
"  cotton  bills  "  drawn  against  the  sales  of  cotton,  and  so 
on. 

The  persons  selling  or  consigning  the  merchandise 
draws  his  draft  against  the  buyer  or  consignee,  and  with 
the  order  for  the  merchandise,  and  the  warehouse  certifi- 
cate or  bill  of  lading  attached  to  such  draft  (technically 
known  as  "  the  papers  "),  offers  the  same  for  sale  to  his 
bank,  which  purchases  the  same  at  the  market  rate  of 
exchange  on  the  place  at  which  the  draft  is  payable,  less 
interest  on  the  amount  of  the  draft  from  the  date  of  its 
purchase  to  its  maturity,  which  is  deducted  from  the 
amount  paid  over.  The  draft  is  then  sent  to  its  place  of 
payment  for  collection,  and  when  collected  the  amount  is 
either  remitted  or  credited  to  the  bank.  The  same  bank 
will  also  sell  exchange  on  the  city  at  which  its  draft  is 
payable,  but  at  a  higher  rate  than  it  will  purchase  at,  as 
no  bank  can  afford  to  sell  exchange  as  cheap  as  it  will 
buy  it. 

The  dealings  in  domestic  exchange  are  confined  almost 
entirely  to  banks,  whereas  dealings  in  foreign  exchange 
are  conducted  almost  entirely  through  private  houses, 
known  as  Dealers  in  Exchange. 

Bills  of  Exchange. — The  chapter  on  exchange  is  de- 
signed to  give  the  principles  governing  exchange,  rather 
than  the  machinery  by  which  such  exchange  is  effected. 
Hence  it  is  necessary  to  say  a  few  words  about  the  papers 
commonly  used  in  the  purchase  and  sale  of  exchange. 

First  will  be  considered  bills  of  exchange,  which  are 
used  almost  exclusively  in  foreign  exchange,  and  of  which 
the  following  is  the  general  form  : 


NOTARY  PRESENTATION. 

"  NEW  YORK,  August  i,  1893. 
"  Exchange  for  ;£ioo. 

:<  Ten  days  after  sight  of  this  our  First  of  Exchange  (second 
and  third  of  the  same  tenor  and  date  unpaid)  pay  to  the  order 
of  James  Brown  One  Hundred  Pounds  sterling,  and  charge 
the  same,  without  further  advice,  to 

"DREXEL  &  Co. 
"To 

"  BARING  BROTHERS, 

"  London. 
"  No.  420." 

From  the  above  it  will  be  seen  that  these  bills  are 
issued  in  triplicate,  each  copy  bearing  the  same  number, 
and  upon  the  payment  of  one  the  others  are  rendered 
void.  The  reason  for  this  issuance  in  triplicate  is  to  pro- 
vide against  loss,  two  copies  being  sent,  each  by  a  different 
steamer,  or  route,  and  a  third  retained  by  the  purchaser. 
These  bills  are  also  transferable  upon  endorsement  as  in 
the  case  of  notes  and  drafts,  the  person  to  whom  the 
same  is  endorsed,  or  the  holder  thereof  for  a  considera- 
tion, being  the  legal  owner. 

"  Notary"  Presentation,— Protest,  Notice  of  Protest. 

In  connection  with  notes,  drafts,  and  bills  of  exchange, 
it  is  very  important  that  some  general  remarks  as  to  the 
due  presentation,  protest,  and  notice  of  protest  should  be 
made.  This  necessitates  some  statement  of  the  duties  of 
the  "  Notary." 

Presentation. — Banks,  acting  either  as  principals  or 
collecting  agents,  as  a  matter  of  courtesy  and  precaution, 
generally  give  the  makers  of  notes  and  the  acceptors  of 
drafts  and  bills  of  exchange  informal  notice  several  days 
before  maturity  of  the  time  and  place  of  payment  of  such 
paper  held  by  them,  by  mailing  or  leaving  a  notice  to  that 
effect  at  the  place  where  the  paper  is  payable. 

During  the  morning  of  maturity  if  such  paper  is  not 


252         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

paid  a  formal  presentation  and  demand  for  payment  is 
made  by  the  bank  or  holder. 

Protest. — At  the  close  of  banking  hours  such  matured 
paper  as  remains  unpaid  is  handed  to  the  notary  for  pres- 
entation protest  and  notice  to  the  endorsers  or  drawers. 
The  notary  should,  irrespective  of  any  number  of  previ- 
ous presentations,  again  present  the  paper  at  its  place  of 
payment  before  protesting  the  same.  In  New  York  and 
Brooklyn,  however,  a  number  of  notaries,  particularly 
those  who  are  officers  or  employes  of  the  banks  for  which 
they  act,  make  no  personal  presentation,  and  treating  the 
employes  of  the  banks  making  formal  presentations  as 
their  clerks,  rely  upon  such  presentations  for  their  protests. 
In  these  cases  the  ordinary  certificate  of  protest  which 
affirms  a  personal  presentation  by  a  notary  is  obviously 
false,  and,  to  conform  to  the  facts,  should  be  changed  to 
read  "  has  caused  the  same  to  be  presented,"  or  it  was  pre- 
sented, "  by  my  clerk."  In  which  latter  instance,  while 
the  protest  is  probably  sufficient  to  hold  an  endorser  or 
drawer,  proof  of  presentation  can  only  be  made  by  the 
person  who  actually  presented  the  paper. 

Drafts  or  bills  of  exchange  may  and  should  be  protested 
immediately  upon  the  refusal  of  the  drawee  to  accept. 

Notice  of  Protest. — In  the  case  of  notes  notice  of  pro- 
test should  be  mailed  or  presented  the  day  of  protest  or 
early  the  next  business  day  to  the  last  and  each  preceding 
endorser  on  the  protested  paper.  While  the  notary  has 
discharged  his  duty  by  sending  notice  to  the  last  endorser 
only,  and  the  preceding  endorsers  are  thereby  held,  most 
careful  notaries  send  notice  of  protest  not  only  to  each 
endorser,  but  to  the  last  endorser  copies  which  he  may 
himself  send  to  his  prior  endorsers.  In  order  that  a  sub- 
sequent endorser  may  maintain  an  action  against  his  prior 
endorsers,  he  should  immediately  upon  or  early  the  day 
following  send  a  copy  of  such  notice  to  each  preceding 
endorser. 


CHECKS.  253 

Where  an  endorser  whose  street  address  is  unknown 
resides  in  the  city  in  which  the  paper  is  payable,  notice 
addressed  thus, "  John  Jones,  New  York  City,  N.  Y.,"  and 
deposited  in  the  General  Post  Office,  is  deemed  sufficient. 
Where  the  address  is  known  or  by  due  diligence  can  be 
obtained  it  should  be  placed  on  the  envelope. 

In  the  case  of  drafts  or  bills  of  exchange  notice  of  pro- 
test should  be  mailed  the  drawer  and  endorsers  as  above 
upon  failure  of  the  drawee  to  accept  or  pay  the  same. 

It  has  been  held  in  the  majority  of  States,  and  may  be 
taken  to  be  the  law  generally,  that  a  notice  of  protest 
deposited  within  the  proper  time  in  the  General  Post  Office 
is  sufficient  notice  to  charge  the  drawer  or  endorsers. 
This  is  certainly  the  law  in  New  York  State.  The  denial 
of  the  receipt  of  a  notice  of  protest  in  an  action  on  a 
promissory  note  or  draft  clearly  avails  nothing.  The 
denial  must  be  of  the  proper  mailing  or  giving  of  notice. 

Checks. — A  check  is  an  order,  usually  on  a  banker  or 
bank,  to  pay  either  to  the  person  in  whose  favor  it  is 
drawn,  or  some  subsequent  endorsee  the  amount  stated  on 
its  face.  Many  checks,  however,  are  drawn  to  "  bearer," 
in  which  case  the  bank  may  pay  the  amount  called  for  to 
the  person  presenting  the  same  without  incurring  liability 
in  the  event  of  the  wrong  person  obtaining  the  money. 

The  following  is  the  form  of  check  most  generally  used 
in  New  York : 

4<  NEW  YORK,  January  2,  1894. 
"  No.  5 13- 

" NATIONAL   BANK. 

"  Pay  to  the  order  of  RICHARD  ROE 
One  Thousand  Dollars. 

"  $1000.00. 

"JOHN  DOE." 


254         PRINCIPLES-  AND  PRACTICE   OF  FINANCE. 

Some  banks,  however,  supply  their  depositors  with 
what  is  known  as  the  Chicago  check,  on  which  the  dollar 
sign  is  placed  at  the  end  of  the  line  beginning  with  the 
words  "  Pay  to  the  order  of." 

Richard  Roe,  in  order  to  receive  payment  on  his  check, 
or  to  enable  another  person  to  do  so,  must  endorse  the 
check,  by  writing  his  name  across  the  back  of  it.  The 
proper  way  to  do  this  is  to  place  the  check  face  downwards 
with  the  beginning  of  the  lines  pointed  away  from  the 
writer,  and  then  write  Richard  Roe  across  the  back  well 
toward  the  top,  so  as  to  permit  of  other  endorsements. 
As  a  rule,  it  is  very  unwise  to  endorse  a  check  merely 
with  the  name  of  the  drawee,  unless  it  is  the  object  of 
such  drawer  to  have  some  person  unknown  to  the  teller 
collect  the  same,  in  which  event  any  person  getting  pos- 
session of  the  check  might  collect  the  money.  It  is 
preferable  to  endorse  the  check  to  the  person  whom  it  is 
desired  shall  be  paid,  thus : 

"  Pay  to  the  order  of 
JOHN  BROWN. 
RICHARD    ROE." 

or,  if  the  check  is  to  be  deposited,  it  should  be  endorsed 
thus  : 

"  For  deposit  in Bank. 

"  RICHARD  ROE." 

Then  should  the  check  come  into  the  possession  of  a 
person  not  entitled  thereto,  this  prevents  him  from  getting 
the  money  therefor. 

The  signatures  on  checks  have  been  so  often  forged  or 
the  amounts  thereof  raised  that  numerous  devices  and 
precautions  have  been  adopted  to  lead  to  the  immediate 


CHECKS.  255 

detection  of  either,  for  neither  can  be  prevented.  Per- 
haps the  safest  way  to  ensure  the  immediate  detection  of 
the  forgery  is  to  have  every  blank  check  in  the  check-book 
numbered  consecutively  by  machinery;  never  draw  a 
check  out  of  its  regular  order,  frequently  see  that  no 
checks  have  been  abstracted,  and  in  case  the  stubs  and 
the  body  of  the  checks  are  filled  out  by  clerks,  sign  the 
checks  before  they  are  torn  out  of  the  book.  Check- 
books, when  not  in  use,  should  be  locked  up  in  a  safe  or 
some  other  secure  place.  The  check .  itself  should  be 
always  of  tinted  paper,  so  that  if  an  acid  is  used  to  re- 
move any  portion  of  the  writing  that  something  else  may 
be  substituted,  the  acid  will  take  out  the  color  along  with 
the  ink  and  render  discovery  easy. 

The  method  usually  adopted  in  England  to  prevent  the 
removal  of  one  word  or  figure  and  the  substitution  of 
another  is  the  employment  of  chemically  prepared  check 
paper,  in  combination  with  a  chemical  ink,  when,  should 
the  figures  or  words  written  on  the  check  be  removed  by 
acid,  the  chemical  ingredients  of  the  ink  as  well  as  of  the 
paper,  combined  with  the  chemicals  used  to  abstract  the 
words  or  figures,  eat  a  hole  in  the  paper  and  thus  render 
the  insertion  of  other  words  or  figures  impossible. 

Lines  should  be  drawn  from  the  end  of  the  name  of  the 
person  to  whom  the  check  is  made  payable  to  the  end  of 
the  line,  so  as  to  prevent  the  insertion  of  the  words  "  or 
bearer."  The  same  thing  should  be  done  in  regard  to  the 
line  on  which  the  amount  is  spelled  out,  otherwise  it  is 
easy  to  insert  some  word  raising  the  amount.  Numerous 
plans  are  tried  to  prevent  the  raising  of  checks.  The 
most  common  at  present  is  to  cut,  with  a  machine  con- 
structed for  that  purpose,  the  figures  representing  the 
amount  of  dollars  called  for,  immediately  preceded  by  a 
dollar  sign  and  followed  by  a  period.  This  prevents  the 
insertion  of  any  figure  between  these  signs.  The  amount 
of  the  cents  is  usually  omitted. 


2$6         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

Another  device  is  to  perforate  the  figures  stating  the 
amount  with  a  stamp  prepared  for  that  purpose,  which 
renders  it  difficult  to  change  the  amount  of  the  figures. 

Nothing  is  so  difficult  to  simulate  as  the  natural  hand- 
writing, and  any  teller  will  say  that  strained  and  artificial 
signatures,  even  when  intricate  and  embellished  with 
many  flourishes,  are  much  easier  to  forge  than  those 
written  in  the  ordinary  hand. 

In  reference  to  intermediate  endorsements  of  a  check, 
while  it  is  advisable  that  the  receiving  or  paying  teller,  as 
the  case  may  be,  should  exercise  care  to  such  an  extent 
as  to  see  that  they  have  been  properly  made,  and  that  the 
check  is  rightfully  in  the  hands  of  the  person  presenting 
the  same  for  payment  or  deposit,  still  it  is  not  possible 
that  a  teller  should  be  acquainted  with  the  genuineness  of 
each  intermediate  endorsement,  nor  is  it  necessary,  as  he 
is  not  likely  to  pay  a  check  to  a  person  unknown  to  him, 
and  if  the  check  is  received  for  deposit  and  returned,  the 
depositor's  account  will  simply  be  charged  with  the 
amount  of  such  check  which  formed  a  part  of  his  credit. 

Checks  should  be  deposited  for  collection,  or  cashed, 
certainly  within  two  days  of  their  receipt,  and  preferably 
the  same  day,  where  possible,  as  procrastination  in  this 
matter  may  render  the  collection  impossible. 

Persons  receiving  uncertified  checks  for  large  amounts 
should  take  them  immediately  to  the  bank  and  have  them 
certified.  Such  checks  are  generally  certified  previous  to 
payment,  and  if  not,  as  a  rule  should  be. 

Course  of  a  Check  through  a  Bank. — The  person  to  whom 
a  check  is  given  presents  the  same  to  the  paying  teller  for 
payment  at  the  bank,  who,  if  the  presenter  is  properly 
identified,  and  the  drawer's  account  shows  a  sufficient  net 
credit,  pays  the  check,  which  is  then  charged  upon  a  book 
kept  by  him  for  that  purpose,  to  the  account  of  the 
drawer,  and  is  then  handed  over  to  a  clerk  who  takes  the 
same,  along  with  others,  to  the  bookkeeper  keeping  the 


CERTIFICATES  OF  DEPOSIT.  257 

depositors'  ledger  in  which  the  name  of  such  drawer  would 
appear.  The  bookkeeper  charges  the  same  to  the  account 
of  the  drawer  and  files  the  check.  At  the  end  of  the 
month  or  at  some  stated  period  when  the  drawer's  passbook 
is  balanced,  the  amount  of  the  check  is  entered  on  a  slip, 
on  one  side  of  which  are  the  credits  and  on  the  other  side 
the  amount  of  the  checks  drawn,  which,  along  with  the 
checks  marked  "  Paid  "  and  the  pass  book  in  which  the 
balance  is  recorded,  are  then  returned  to  the  depositor. 

Cashiers  Checks. — These  are  checks  issued  by  banks 
over  the  signature  of  the  Cashier  for  the  payment  of  the 
sum  of  money  stated  therein.  They  are  frequently  pur- 
chased by  persons  desiring  to  remit  money,  and  constitute 
perhaps  one  of  the  commonest  forms  of  exchange.  The 
object  of  their  purchase  is  that  the  check  of  a  bank  is  a 
more  readily  transferable  instrument  than  the  check  of  an 
individual,  even  when  certified.  It  is  usually  drawn  upon 
a  particular  bank,  and  the  charge  made  therefor  is  the  pre- 
vailing rate  of  exchange  upon  the  city  on  which  it  is 
payable. 

Certificates  of  Deposit. — Certificates  of  Deposit  are 
often  used  as  a  means  of  transmitting  money,  and  are,  of 
course,  necessarily  transferable  on  endorsement. 

They  are  really  nothing  but  receipts  from  banks  that 
certain  amounts  of  money  have  been  deposited,  which 
they  will  on  demand  repay  either  to  the  depositors  or  to 
some  person  named  in  writing  by  the  depositor  on  the 
face  of  such  certificate. 

A  certificate  of  deposit  can  also  be  made  payable  in 
whole  or  in  part  at  some  agency  of  the  bank,  by  the  bank 
directing  such  payment  on  its  face. 

This,  however,  is  not  a  very  frequent  method  of  trans- 
mitting money,  being  much  more  troublesome  and  no 
better  than  a  certified  check.  It  is  used  mostly  by  peo- 
ple who  either  do  not  have,  or  do  not  intend  to  keep  in 
the  bank  issuing  the  same,  a  regular  account. 


258         PRINCIPLES  AND   PRACTICE   OF  FINANCE. 
The  following  is  the  common  form  of  such  certificate : 


THE  NATIONAL  BANK  OF 


.,  Mass., i8/_ 

_ha__  deposited  in  this  Bank 
.  Dollars 


payable  to  the  order  of. 

on  the  return  of  this  Certificate  properly  endorsed. 


No.. 


Cashier. 


Letters  of  Credit. — A  Letter  of  Credit  is  a  letter  is- 
sued by  one  or  more  persons,  usually  a  firm  of  bankers, 
addressed  to  one  or  any  number  of  persons  who  may  or 
may  not  be  named  therein,  authorizing  them  to  pay  to 
the  person  or  persons  in  whose  favor  it  is  drawn,  the 
whole  or  any  part  then  due  of  the  amount  for  which  it 
is  issued,  and  guaranteeing  the  repayment  to  the  persons 
or  firms  making  such  advances. 

The  usefulness  of  these  letters  to  travellers  consists 
in  the  fact  that  being  drawn  not  against  a  single  house, 
but  practically  against  every  banker  in  the  world,  the 
traveller  is  not  compelled,  as  in  the  case  of  a  bill  of 
exchange,  to  present  the  same  at  but  one  specified  place 
and  receive  the  whole  amount  it  calls  for  in  one  cur- 
rency, but  may  present  it  wherever  and  whenever  he 
pleases,  during  the  time  for  which  it  is  drawn,  and  real- 
ize on  it  the  amount  he  may  then  need  in  the  currency 
of  the  country  where  he  is,  thereby  entirely  doing  away 
with  the  inconvenience  and  insecurity  of  carrying  large 
sums  of  money  about  his  person,  and  avoiding  the  fre- 
quent change  from  one  currency  to  another,  for  which  a 
commission  in  the  shape  of  a  discount  on  the  amount 
paid  is  always  charged. 


LETTERS  OF  CREDIT. 

Depending  for  their  value,  as  these  letters  necessarily  do, 
upon  the  financial  standing  and  reputation  of  the  issuer, 
whose  credit  to  that  extent  has  been  purchased  by  the 
holder  of  the  letter,  it  is  of  the  utmost  importance  that 
these  letters  should  only  be  purchased  from  firms  of  the 
best  and  widest  reputation,  for  while  a  less  well  known 
firm  may  be  equally  sound  financially,  and  the  holder  of 
its  letter  have  no  difficulty  in  realizing  on  it  from  the 
issuer's  correspondents  or  where  the  issuer  is  known,  still 
such  a  letter  could  not  be  so  generally  used  as  one  issued 
by  a  better  known  house. 

The  following  is  the  ordinary  form  of  the  first  page : 


CIRCULAR  LETTER  OF  CREDIT. 

No.  g  11212. 


o-/  etz.cn   e^ii^^.  mttid  &e  indcii/efd  ort,  &t&  <&etc&  of 

v  ft    11  ^K. 

tAit  te&et  tana!  to-  tnid-  i&6  w-fdSi.  fa  ^f$k*C   Mo-ui.  dfiecta./  tztte^io^.         G/nid. 
tettei.  i&e&  4n.o4e.t&  ve  ce&n-cewed  tzw&Qdtezcsi-eed  to- 

6ee  to-  it  tneit  tne-.  e^&fa-  &e  j-itzneed  in, 


cc-mAt&te  t&e  dii&ntzttUe  w^n^  trie 

*  *  f 

k  cU  ent/em,  -    ~ 


26o 


PRINCIPLES  AND  PRACTICE   OF  FINANCE. 


The  second  page,  on  which  the  amounts  paid  the  holder 
of  such  letter  are  recorded,  is  as  follows : 


Date 

Name 

Amount  Paid 

Amt. 

When 

By  Whom  Paid. 

of 

Expressed 

in 

Paid. 

Town. 

in  Words. 

Fig's. 

Apr. 

10 

Brown,  Shipley,  &  Co. 

London. 

Twenty-five  pounds. 

£*s. 

« 

27 

Credit  Lyonnaise. 

Lyons. 

Ten  pounds. 

"  10 

May 

16 

Munroe  &  Co. 

Paris. 

Fifty  pounds. 

"  50 

Aug. 

4 

Knauth,  Nachod,&Kuhne. 

Leipzig. 

Fifteen  pounds. 

"  15 

£100. 

Attached  to  these  letters,  either  as  a  third  page,  or  as  a 
separate  paper,  is  a  list  of  the  various  correspondents  or 
agents  of  the  firm  issuing  the  letter.  Along  with  each 
letter  goes  a  check  book,  the  blank  checks  in  which  are 
addressed  to  the  maker  of  the  letter. 

It  will  be  observed  by  glancing  at  the  fac-simile  given 
above  of  one  of  these  letters,  that  it  contains  the  sig- 
nature of  the  holder,  which,  of  course,  presents  an  easy 
means  of  identification,  as  he  thereby  has  in  his  possession 
the  thing  by  which  he  can  always  be  identified.  A  fur- 
ther and  safer  means,  and  one  which  should  be  adopted, 
would  be  to  imprint  on  each  letter  a  photograph  of  the 
person  in  whose  favor  it  is  issued. 

These  credits  are  not  necessarily  issued  only  to  indi- 
viduals, but  may  be  issued  to  several  persons. 

Practically  all  sellers  of  these  letters  will  issue  them 
upon  a  deposit  of  cash,  upon  guarantee  of  payment  of 
amounts  drawn,  or  upon  a  deposit  of  marketable  securi- 
ties. On  all  letters  for  less  than  ^500  a  commission  of  I 
per  cent,  is  charged.  (These  letters  are  nearly  all  drawn 
in  sterling,  as  that  is  the  most  generally  used  currency.) 
Letters  for  a  sum  in  excess  of  ^500  are  issued  against  a 
deposit  of  cash,  without  charge,  but  no  interest  is 


LETTERS  OF  CREDIT.  26 1 

allowed  on  the  cash  so  deposited,  unless  the  same  exceed 
£1000. 

In  case  the  letter  is  issued  against  a  deposit  of  securi- 
ties, and  the  securities  have  to  be  sold  to  make  good  the 
payment  on  such  letter,  the  usual  brokerage  is  charged, 
or  in  case  interest  on  the  securities  is  collected,  a  charge 
of  one  fourth  of  one  per  cent,  is  made  for  such  service. 

Whatever  part  of  the  amount  for  which  the  letter 
is  drawn  remains  to  the  credit  of  the  holder  is  payable  to 
him  on  demand  either  at  the  home  office  or  that  of  any 
agent  or  correspondent. 

The  manner  of  using  such  letter  is  so  simple  as  to 
require  but  brief  explanation.  The  holder,  when  in  want 
of  funds,  refers  to  the  list  of  agents  and  correspondents 
attached  to  his  letter,  selects  the  one  in  the  place  where 
he  may  be,  draws  his  check  against  the  issuers  of  such 
letter  on  one  of  the  blanks  furnished  him  in  the  check 
book,  presents  his  letter  and  check,  and  the  check  is 
cashed  in  the  currency  of  the  country  in  which  it  is  pre- 
sented, and  the  amount  in  sterling  is  charged  on  the 
letter. 

Although  it  is  preferable  to  present  these  letters  to  the 
correspondents  of  the  issuer,  should  there  be  none  in  the 
place  where  the  holder  happens  to  be,  he  can  procure 
what  funds  he  needs  thereon  from  almost  any  bank  or 
banker. 

The  person  or  firm  making  advances  on  the  letter, 
writes  the  issuers  thereof,  mentioning  the  number  of  the 
letter  enclosing  the  check  of  the  holder  for  the  amount 
paid,  together  with  his  or  their  charges,  and  the  same  is 
remitted  them. 

Naturally,  in  the  case  of  agents  or  correspondents  who 
pay  a  large  number  of  checks  on  different  letters,  and 
themselves  draw  letters  on  which  the  first  house  men- 
tioned also  makes  advances,  periodical  statements  are 
made  and  balances  remitted. 


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264         PRINCIPLES  AND   PRACTICE    OF  FINANCE. 

The  above  table  is  issued  on  the  first  days  of  January,, 
April,  July,  and  October  in  each  year. 

The  above  table,  it  must  not  be  assumed  fixes  the  inter- 
changeable market  value  of  coins,  it  is  merely  a  statement 
of  what  the  Federal  Government  estimates  them  as  worth 
for  the  purpose  of  valuing  imports. 

The  value  of  gold  coin  to  gold  bullion  is  unchangeable  so 
long  as  the  weight  of  pure  metal  in  the  coins  remains  the 
same,  and  while  the  value  of  silver  coin  to  silver  must  follow 
the  same  law,  the  value  of  silver  coin  in  gold  bullion 
changes  so  rapidly  and  the  fluctuations  are  so  great  as  to 
necessitate  a  table  showing  the  weight  of  pure  metal  in 
coins  in  order  to  determine  their  value.  With  the  weight 
of  pure  metal  known,  and  the  gold  price  of  silver  per 
ounce  quoted  daily  in  the  newspapers,  the  gold  value  of 
silver  coins  can  be  readily  ascertained  by  dividing  the 
portion  of  an  ounce  which  a  coin  weighs  into  the  quota- 
tion. The  following  table  (No.  2,  p.  266)  gives  the  weights 
of  both  alloyed  and  pure  metal. 

In  United  States  money  the  value  of  an  ounce  of  pure 
gold  is  $20.67.  To  ascertain  the  value  of  any  gold  coin 
divide  the  portion  of  an  ounce  it  constitutes  into  20.67. 

The  relative  value  of  coins  to  each  other  can  be  deter- 
mined in  the  same  way. 

The  weights  both  of  alloyed  and  pure  metal  given  in 
Table  No.  2  are  of  coins  as  they  come  from  the  mints. 

From  a  study  of  this  table  it  will  be  seen  that  while 
the  names  of  the  coins  which  are  the  monetary  units  in 
different  countries  differ,  they  are  in  many  cases  of  the 
same  weight  and  fineness.  Thus  in  the  case  of  France, 
Belgium,  Italy,  Switzerland,  and  Greece,  comprising  the 
Latin  Union,  in  France,  Belgium  and  Switzerland  this 
unit  is  the  franc,  in  Italy  it  is  the  lira,  and  in  Greece 
the  drachma.  In  none  of  these  countries,  however, 
is  the  franc,  the  lira,  or  the  drachma  legal  tender  except 
to  a  limited  sum.  The  5-franc,  5-lira,  or  5-drachma  piece 


DECIMAL   GOLD  AND   SILVER    WEIGHT   TABLE.      26$ 

(silver)  is  the  lowest  denomination  of  coin  which  is  legal 
tender. 

In  the  case  of  Denmark,  Norway,  and  Sweden,  compris- 
ing the  Scandinavian  Union,  the  krone  or  crown  is  the 
unit,  the  gold  coins  are  the  2O-crown  and  the  lo-crown 
piece,  the  silver  coins  are  the  2-crown  and  I  crown,  the 
50,  40,  25-,  and  io-6re  pieces. 

In  Bolivia,  the  Central  American  States  consisting  of 
Costa  Rica,Guatemala, Honduras,  Nicaragua, and  Salvador, 
in  the  U.  S.  of  Colombia  (in  Ecuador,  called  the  "  Sucre  "), 
and  in  Peru  the  silver  peso  of  385.800  grains  alloy  .900 
fine,  or  347.220  grains  pure  silver,  forms  the  monetary  unit. 

The  weight,  wherever  obtainable,  has  been  expressed 
in  grains,  but  in  the  currencies  of  France,  Belgium,  Italy, 
Greece,  Switzerland,  constituting  the  Latin  Union,  and 
Denmark,  Norway,  and  Sweden,  the  Scandinavian  Union, 
the  German  Empire,  Portugal,  Spain,  and  Turkey  it  is 
shown  in  grammes. 

DECIMAL  GOLD  AND  SILVER  WEIGHT  TABLE. 

I   Gram  or  15.43235  grains 

10  Grams  —   I  Dekagram  =       154.3225         " 

IO  Dekagrams    =   i  Hectogram  =     1543.2348 
jo  Hectograms  =   I  Kilogram    =   15432.34874 

Taken  from  The  World's  Metal  Monetary  Systems. 


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267 


CHAPTER  XVI. 

Interest — Grace — Legal  Holidays. 

Usury,  penalty  of,  forfeiture  of 
interest.  Grace  allowed.  Legal  holidays  :  Sundays,  January  1st,  February 
22d,  April  26th,  July  4th,  Thanksgiving  day,  Good-Friday,  Mardi  Gras, 
and  Christmas.  If  any  of  these  days,  except  Mardi  Gras,  falls  on  Sunday, 
the  following  Monday  is  the  legal  holiday.  Paper  entitled  to  days  of  grace 
or  subject  to  protest  falling  due  on  a  holiday  becomes  legally  due  on  the 
next  succeeding  business  day. 

Arizona. — Legal  rate  of  interest  7  %.  Contract  rate  unlimited,  No 
usury  law.  Protest  unnecessary  if  suit  is  begun  within  sixty  days  of  date 
when  payment  is  due.  Grace  allowed  on  notes  and  bills  of  exchange. 
Legal  holidays  :  same  as  New  York,  except  first  Monday  in  September, 
and  Saturday  half-holiday.  Paper  falling  due  on  holidays  or  Sundays  is  col- 
lectible on  the  next  business  day. 

Arkansas. — Legal  rate  6  %.  Maximum  contract  rate  10  %.  Usurious 
contracts  are  void,  both  as  to  principal  and  interest,  and  negotiable  paper 
tainted  with  usury  is  void  in  the  hands  of  an  innocent  holder.  Judgments 
bear  same  rate  of  interest  as  contracts  on  which  they  are  recovered,  'except 
judgments  against  counties  which  bear  no  interest.  Grace,  three  days. 
No  holidays  peculiar  to  the  State.  Notes  and  bills  due  on  Sunday,  Christ- 
mas, and  July  4th  must  be  presented  the  business  day  previous.  But  notice 
of  protest  need  not  be  given  until  the  day  after  such  days. 

California. — Legal  rate  7  %.  Contract  rate  unlimited.  Judgments  bear 
7  %  interest.  No  grace.  Legal  holidays  :  same  as  New  York,  except  Sep- 
tember gth  in  place  of  first  Monday  in  September,  and  no  Saturday  half- 
holiday. 

Colorado. — Legal  rate  8  %.  Contract  rate  unlimited.  County  orders 
and  warrants  draw  8  $,  State  warrants  6$.  No  usury  laws.  Legal  holidays  : 
same  as  New  York,  except  no  Saturday  half-holiday.  Same  provision  as  in 
case  of  New  York  should  holidays  fall  on  Sunday,  except  that  paper  is  pay- 
able the  previous  business  day.  On  notes  and  bills  of  exchange  three  days' 
grace. 

268 


INTEREST— GRACE — LEGAL  HOLIDAYS.  269 

Connecticut. — Legal  contract  rate  6  %.  Usury,  penalty,  forfeiture  of 
interest  in  excess  of  legal  rate  to  any  one  except  the  borrower  suing  within  a 
year.  Grace,  three  days.  When  either  day  of  grace  expires  upon  a  legal 
holiday,  the  paper  is  collectible  the  business  day  preceding  such  holiday. 
No  legal  holidays  peculiar  to  the  State. 

Delaware. — Legal  and  contract  rate  6  %.  Usury,  penalty,  forfeiture  of  a 
sum  equal  to  the  amount  lent.  Grace,  three  days  on  all  bills  payable  at  a 
future  date.  When  third  day  of  grace  falls  on  a  holiday  or  Sunday,  presen- 
tation and  payment  to  be  made  the  preceding  business  day.  When  holiday 
falls  on  Sunday,  paper  maturing  on  Monday  must  be  presented  the  previous 
Saturday. 

District  of  Columbia. — Legal  rate  6$.  Maximum  contract  rate  10$. 
Usury,  penalty  of,  recovery  of  whole  interest  paid  by  action  brought  within 
year  after  payment.  Legal  holidays  :  January  ist,  February  22d,  Inaugu- 
ration day  (every  fourth  year),  May  soth,  July  4th,  first  Monday  in  Sep- 
tember, Thanksgiving  day,  and  December  25th.  Grace  not  allowed. 

Florida. — Legal  rate  8  %.  Maximum  contract  rate  10  %.  Contracts  for 
more  than  10  %  void,  interest  forfeited.  Double  amount  of  interest  over  10  % 
paid  to  any  holder  may  be  recovered  by  maker  from  payee.  Legal  holidays  : 
January  ist,  February  22d,  June  3d,  July  4th,  first  Monday  in  September, 
December  25th,  Election  days — Federal  and  State,  Thanksgiving  day. 
Negotiable  paper  due  on  holidays  presentable  and  payable  the  preceding 
business  day.  Grace  not  allowed. 

Georgia. — Legal  rate  7  %.  Maximum  contract  rate  8  %.  Usury, 
penalty  of,  forfeiture  of  excess  of  interest  over  8  %.  Judgments  bear 
7  %  interest  on  the  principal  recovered.  No  grace  on  sight  paper.  Protest 
unnecessary  to  hold  endorser,  except  when  payable  at  a  bank  or  banker's 
office,  when  grace  shall  be  allowed.  Legal  holidays  :  January  ist,  January 
igth,  February  22d,  April  26th,  July  4th,  December  25th,  and  other  days 
appointed  by  the  President  or  Governor.  Paper  due  on  holidays  to  be 
presented  the  preceding  business  day. 

Idaho. — Legal  rate  10$.  Maximum  contract  rate  18  %.  Compound  in- 
terest allowed.  Usury,  penalty  of,  10$  of  debt.  No  grace.  Paper  due  on 
Sundays  or  holidays  payable  next  business  day.  No  special  holidays. 

Illinois. — Legal  rate  5  %.  Contract  rate  7  %.  Usury,  penalty,  forfeiture 
of  interest.  No  grace  on  sight  demands,  three  days  on  other  instruments. 
Legal  holidays  :  same  as  New  York,  except  no  Saturday  half-holiday.  Paper 
due  on  holidays  payable  preceding  business  day. 

Indian  Territory. — Same  as  Arkansas. 

Indiana. — Legal  rate  6  %.  Maximum  contract  rate  8  %.  Usury,  when 
paid,  can  be  recovered  from  the  payee.  Grace,  three  days,  allowed  on  all 
paper.  Legal  holidays  :  same  as  New  York,  except  no  Saturday  half-holiday. 
Paper  due  on  a  holiday  payable  preceding  business  day. 


270         PRINCIPLES  AND  PRACTICE   OF  FINANCE, 

Iowa. — Legal  rate  6  %.  Maximum  contract  rate  8  %.  Usury,  penalty, 
forfeiture  of  10  %  of  contract.  Judgments  bear  rate  of  interest  of  contracts 
on  which  recovered.  Grace  allowed.  No  special  holidays. 

Kansas. — Legal  rate  6  %.  Maximum  contract  rate  10  %.  Usury, 
penalty,  forfeiture  of  double  the  amount  of  all  interest  over  10  %.  Grace, 
three  days.  Legal  holidays  :  Sundays,  July  4th,  December  25th,  Janu- 
ary ist,  Thanksgiving.  Paper  due  on  a  holiday  is  payable  the  preceding 
business  day. 

Kentucky.— Legal  rate  6  %.  Usury,  penalty,  forfeiture  of  excess  of 
interest  over  6  %.  Three  days'  grace.  Paper  due  on  Sundays  or  legal  holi- 
days payable  preceding  business  day. 

Louisiana. — Legal  rate  5$.  Contract  rate  8#,  although  parties  may 
agree  to  even  a  higher  rate,  which  may  be  collected.  After  maturity  of 
obligation  any  stipulation  for  higher  rate  than  8  %  forfeits  entire  interest. 
Judgments  bear  rate  of  interest  of  the  debts  on  which  they  are  recovered. 
Grace,  three  days,  except  on  sight  bills,  on  which  no  grace  is  allowed. 
Paper  due  on  a  legal  holiday  is  payable  the  next  succeeding  business  day. 
Legal  holidays  :  January  1st,  8th,  February  23d,  Mardi  Gras,  4th  of  March 
in  New  Orleans,  July  4th,  December  25th,  Sundays,  and  Good-Friday. 

Maine. — Legal  rate  6  %.  Contract  rate  unlimited.  Judgments  bear  6  %. 
Grace,  three  days,  except  on  demand  paper.  Paper,  the  last  grace  day  of  which 
is  on  a  legal  holiday,  is  payable  the  preceding  business  day,  except  where 
two  holidays  come  together,  the  last  of  which  constitutes  the  other  grace 
day ;  or,  if  one  of  the  other  days  falls  on  Sunday  and  is  the  second  grace 
day,  four  days  of  grace  are  allowed.  Legal  holidays  :  same  as  New  York, 
except  Election  days  and  Saturday  half-holiday. 

Maryland. — Legal  and  contract  rate  6  %.  Usury,  penalty,  forfeiture  of 
excess  over  actual  value  of  goods  and  chattels  lent.  Grace,  three  days. 
Legal  holidays :  same  as  New  York,  except  that  Good-Friday  is  observed  as 
a  legal  holiday  and  the  first  Monday  in  September  is  not  a  legal  holiday, 
and  no  Saturday  half-holiday.  Paper  due  on  a  legal  holiday  is  payable  pre- 
ceding business  day. 

Massachusetts. — Legal  rate  6  %.  Contract  rate  on  loans  not  in  excess 
of  $1000,  maximum  18  $,  provided  contract  is  in  writing.  Corporate  bonds, 
maximum  7  %.  Three  days'  grace  allowed  on  all  paper  in  the  absence  of  a 
statement  to  the  contrary. 

Michigan. — Legal  rate  6  %.  Maximum  contract  rate  8  %.  Usury,  pen- 
alty, forfeiture  of  interest.  Grace,  three  days,  on  all  but  demand  paper. 
Paper  falling  due  on  a  legal  holiday  payable  preceding  secular  day. 

Maximum  contract  rate  (when  expressed 
Interest  in  excess  of   10  %  or  compound  interest  pro- 


INTEREST — GRACE — LEGAL  HOLIDAYS.  2/1 

hibited.  Usury,  penalty,  recovery  of  all  interest  paid  in  excess  of  10  %  with 
costs  of  action  if  action  is  brought  within  two  years  after  payment.  Bonds, 
bills,  notes,  assurances,  conveyances,  chattel  mortgages,  and  other  contracts 
whereby  a  greater  sum  than  10  %  is  charged  for  the  loan  are  void.  This 
does  not  apply  in  the  case  of  unmatured  negotiable  paper.  Grace  allowed 
except  where  stipulated  to  the  contrary.  No  grace  on  demand  paper.  Ac- 
ceptances must  be  in  writing.  Legal  holidays  :  Sundays,  Thanksgiving  day, 
Good-Friday,  Christmas  day,  New  Year's  day,  22d  of  February,  4th  of 
July,  or  the  following  day  when  any  of  the  above  named  days  falls  on  Sun- 
day. Paper  falling  due  on  a  holiday  becomes  payable  and  notice  of  protest 
shoulo*  t>e  given  the  preceding  business  day,  but  notice  of  dishonor,  non- 
payment, or  non-fulfilment  may  be  given  the  business  day  succeeding  such 
holiday. 

Mississippi. — Legal  rate  6  %.  Maximum  contract  rate  10  %.  Usury, 
penalty,  forfeiture  of  interest.  Notes  not  considered  protestable  paper. 
Bills  must  be  protested.  Legal  holidays  :  Sundays,  July  4th,  Christmas 
day,  Thanksgiving,  and  New  Year's. 

Missouri. — Legal  rate  6  %.  Maximum  contract  rate  8  %.  Judgments 
bear  rate  of  interest  of  contracts  on  which  recovered.  Open  accounts  bear 
6  %  interest  from  time  of  demand  to  payment.  On  contracts  bearing  usuri- 
ous rate  only  legal  rate  is  recoverable  and  defendant  is  allowed  costs  of 
action.  No  grace  allowed  on  sight  bills  or  orders.  No  written  assignment 
of  a  note  or  bill  is  necessary  to  entitle  the  holder  to  sue.  Legal  holidays  : 
January  1st,  February  22d,  July  4th,  Thanksgiving  day,  general  Election 
days,  December  25th,  and  Sundays.  Where  a  holiday  other  than  a  Sunday 
falls  on  Sunday,  the  Monday  following  is  observed  as  a  holiday.  Paper  due 
on  holidays  or  Sundays  is  payable  the  succeeding  business  day,  unless  such 
holiday  be  a  Sunday,  when  the  paper  becomes  due  the  day  previous. 

Montana. — Legal  rate  10  #,  which  is  the  rate  collectible  after  debt  is 
due.  Contract  rate  unlimited.  No  usury  law.  Three  days'  grace  allowed 
on  bills  and  notes  except  when  the  last  day  of  grace  falls  on  a  Sunday  or 
legal  holiday,  in  which  case  payment  must  be  made  the  preceding  business 
day.  No  grace  on  sight  diafts  or  checks. 

Nebraska. — Legal  rate  7  %.  Maximum  contract  rate  10  %.  Judgments 
bear  same  rate  of  interest  as  contracts  upon  which  they  are  recovered. 
Usury,  penalty,  forfeiture  of  interest.  A  note  bearing  10  %  from  date  to 
maturity  and  24  %  from  maturity  until  paid  not  deemed  usurious,  the  24  % 
being  regarded  as  a  penalty  of  non-payment.  Compound  interest  allowed 
upon  provision  to  that  effect  in  the  paper.  Grace,  three  days,  on  all  but  de- 
mand paper.  Legal  holidays  :  same  as  New  York  except  no  Saturday  half- 
holiday  and  the  addition  of  April  22d  as  a  holiday.  Same  provision  as  in 
New  York  in  regard  to  paper  due  on  a  holiday. 

Nevada. — Legal  rate  7  %.  Contract  rate  unlimited.  Interest  allowed 
only  on  original  claim.  Grace  not  allowed. 


2/2         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

New  Hampshire. — Legal  rate  6  £,  Usury,  penalty,  forfeiture  of  three 
times  excess  of  interest  charged.  Contract  not  invalidated  by  usury.  Grace 
allowed  except  on  sight  paper.  Legal  holidays  :  same  as  New  York,  except 
the  omission  of  January  1st  and  Saturday  half-holidays.  Paper  due  on  a 
holiday  is  payable  the  preceding  business  day  and  must  be  then  presented 
and  if  not  paid  protested. 

New  Jersey. — Legal  rate  6  %.  Usury,  penalty,  forfeiture  of  all  interest 
and  payment  of  costs.  Grace  three  days.  Twenty-four  hours  additional 
allowed  for  notice  of  dishonor.  Legal  holidays  and  provisions  in  regard  to 
payment  of  paper  then  due  same  as  New  York. 

New  Mexico. — Legal  rate  6  %.  Maximum  contract  rate  12  %.  Open 
running  accounts  from  six  months  after  date  of  last  item  bear  6  %.  Judg- 
ments carry  same  rate  as  contracts  on  which  they  are  founded.  Usury, 
penalty  of,  forfeiture  of  double  the  amount  of  interest  received,  upon  action 
brought  within  three  years.  A  fine  is  also  inflicted  for  usury.  Grace  al- 
lowed on  notes  same  as  on  inland  bills  of  exchange  according  to  custom  of 
merchants.  Legal  holidays  :  Sundays,  January  1st,  July  4th,  December 
2$th,  and  all  days  proclaimed  by  the  Governor  as  thanksgiving  or  fast  days. 
Paper  falling  due  on  any  holiday  is  payable  the  next  succeeding  business 
day. 

New  York. — Legal  rate  6  %.  Except  bottomry  and  respondentia  bonds 
and  contracts,  and  call  loans  (see  State  Banks,  page  105),  all  contracts  or 
agreements  bearing  a  higher  rate  of  interest  than  6  %  are  even  in  the  hands 
of  an  innocent  third  party  void.  Corporations  cannot  set  up  usury  as  a  de- 
fence. By  the  Penal  Code,  Sec.  378,  usury  is  made  a  misdemeanor.  Ex- 
cess of  interest  over  legal  rate  may  be  recovered  by  the  borrower  by  action 
brought  within  a  year  from  date  of  payment.  Town  overseers  or  county 
superintendent  of  the  poor  may  bring  action  within  three  years.  An  equity 
suit  may  be  brought  by  a  borrower  or  his  assignee  for  the  benefit  of  creditor, 
but  not  by  other  assignee,  agent,  or  devisee  to  discover  if  usury  has  been 
paid,  or  to  declare  void  a  usurious  instrument. 

State  banks  and  private  bankers  are  placed  on  the  same  footing  in  regard 
to  interest  as  national  banks,  and  forfeit  double  the  excess  of  interest 
charged  above  the  legal  rate. 

No  grace. 

Legal  holidays  :  January  ist,  February  22d,  May  3Oth,  July  4th,  Decem- 
ber 25th  (when  any.  of  these  days  fall  on  Sunday  the  Monday  following  is 
made  the  legal  holiday),  the  first  Monday  in  September,  any  general  Election 
day,  every  Saturday  after  12  M.,  and  any  day  appointed  by  the  President  of 
the  United  States  or  the  Governor  of  the  State  as  a  day  of  thanksgiving  or 
fasting. 

Paper  falling  due  on  holidays  or  Sundays  must  be  presented  on  the  im- 
mediately following  business  day,  except  that  paper  falling  due  on  Saturday 


\ 
INTEREST— GRACE — LEGAL   HOLIDAYS.  273 

may  be  presented  at  or  before  12  noon,  when  if  not  paid,  to  protest  the 
same  and  hold  the  obligors,  presentation,  demand,  and  notice  of  protest  or 
dishonor  may  be  made  the  first  following  business  day. 

North  Carolina. — Legal  rate  6  %.  Maximum  contract  rate  in  writing 
8  %.  Judgments  bear  rate  specified  in  contract  on  which  recovered.  Pen- 
alty for  usury,  forfeiture  of  interest.  Payee  may  recover  excess  beyond  legal 
rate  of  interest  by  suit  brought  within  two  years.  Bonds,  bills,  and  notes 
governed  by  custom  of  merchants  in  England.  Three  days'  grace.  Legal 
holidays  :  January  1st  and  igth,  February  22d,  May  roth  and  2Oth,  July  4th, 
December  25th,  and  a  Thanksgiving  day  to  be  fixed  by  the  Governor.  If 
any  of  said  days  falls  on  Sunday,  the  following  Monday  shall  be  deemed  a 
public  holiday,  and  paper  due  on  such  Sunday  is  payable  on  Saturday  pre- 
ceding, and  paper  which  would  otherwise  be  payable  on  said  Monday  shall 
be  payable  on  Tuesday  thereafter.  When  any  of  the  above  named  holidays 
falls  on  Saturday,  paper  due  on  Sunday  following  is  payable  on  Monday 
following.  Whenever  any  of  said  holidays  falls  on  Monday,  paper  other- 
wise payable  on  that  day  is  payable  on  succeeding  Tuesday. 

North  Dakota. — Legal  rate  7  %.  Maximum  contract  rate  12  %.  Any 
rate  in  excess  of  12  %  is  deemed  usurious  and  warrants  the  forfeiture  of  all 
interest  so  taken,  and  the  payee  may  recover  double  the  amount  paid.  The 
National  Bank  Act  provision  in  regard  to  usury  obtains.  Three  days'  grace 
allowed  on  bills  of  exchange  or  drafts  and  on  all  promissory  notes.  Sundays 
and  holidays  excluded  in  computation  of  days  of  grace. 

Ohio. — Legal  rate  6  %.  Maximum  contract  rate  8  %.  A  higher  rate  than 
8  %  cannot  be  collected,  and  on  a  contract  bearing  such  higher  rate  the  prin- 
cipal sum  and  6  %  only  can  be  recovered.  Three  days'  grace  except  on  sight 
paper.  If  third  day  of  grace  be  Monday,  demand  must  be  made  on  the  next 
preceding  business  day.  Legal  holidays  :  same  as  New  York,  except  Satur- 
day half-holiday  and  the  first  Monday  in  September,  which  for  the  presenta- 
tion and  demand  of  negotiable  paper  is  not  a  legal  holiday. 

Oklahoma  Territory. — Legal  rate  7  %.  Contract  rate  12  %.  Judgments 
bear  7  %.  Grace,  three  days,  on  time  paper. 

Oregon. — Legal  rate  8  %.  Contract  rate  10  %.  Judgments  bear  rate  of 
contract  upon  which  they  are  recovered.  Usury,  which  is  charging  a  higher 
rate  than  10  #,  is  punishable  by  forfeiture  of  principal  sum  and  costs  of  ac- 
tion. No  grace.  Paper  payable  on  a  holiday  due  the  next  business  day. 
Legal  holidays  :  same  as  New  York,  except  Saturday  half-holiday. 

Pennsylvania.— Legal  rate  6  %.  Savings  banks  not  confined  to  legal 
rate.  Commission  merchants  and  agents  may  agree  with  parties  outside  of 
the  State  for  7  %.  Usury,  penalty  of,  forfeiture  of  interest,  and  when  paid 
recovery  by  suit  brought  in  six  months.  Grace  allowed.  Acceptances  in 
excess  of  $20  to  be  in  writing.  A  written  promise  on  a  note  to  pay  a  com- 


274         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

mission  as  a  collection  fee  in  case  of  non-payment  destroys  negotiability. 
Legal  holidays  :  January  ist,  February  22d,  Good  Friday  ;  May  3oth,  when 
on  Sunday,  Saturday  preceding  is  the  legal  holiday  ;  July  ist,  the  first  Sat- 
urday of  September,  Election  days,  September  25th,  Saturday  half-holiday. 
When  holidays,  except  May  3Oth,  fall  on  Sunday,  the  Monday  following 
becomes  the  legal  holiday.  Paper  due  on  a  legal  holiday  is  payable  the  next 
business  day.  The  third  Tuesday  of  February  (Spring  Election  day)  and 
the  first  Tuesday  after  the  first  Monday  of  November  (Fall  Election  day^ 
are  legal  half-holidays  after  12  o'clock. 

Rhode  Island. — Legal  rate  6  %.  Contract  rate  unlimited.  Judgments 
bear  6  %.  Debts,  in  the  absence  of  a  contract  to  the  contrary,  bear  6  %. 
Grace  allowed.  Paper  falling  due  on  Sunday  or  a  legal  holiday  is  payable 
the  next  business  day.  Legal  holidays  :  July  4th,  Christmas  day,  February 
22d,  May  3Oth  (when  any  of  these  days  fall  on  Sunday  the  following  Mon- 
day becomes  the  legal  holiday),  the  first  Wednesday  in  April,  the  first  Tues- 
day after  the  first  Monday  in  November  on  every  even  year,  Arbor  day, 
and  Thanksgiving  and  Fast  days — State  or  National. 

South  Carolina. — Legal  rate  7  %.  The  charging  of  a  greater  rate  than 
8  %  involves  the  forfeiture  of  double  the  amount  of  interest  charged.  The 
receipt  of  usurious  interest  renders  the  lender  further  liable  to  an  action  for 
double  the  amount  of  interest  received.  This  may  be  pleaded  by  way  of 
counterclaim.  Grace  allowed.  Legal  holidays  :  Sundays,  January  1st, 
February  22d,  July  4th,  December  25th,  26th,  and  27th,  first  Monday  in 
September,  Thanksgiving,  and  all  general  Election  days.  Paper  falling  due 
on  a  holiday  is  payable  the  next  business  day. 

South  Dakota. — Legal  rate  7  %.  Contract  rate  12  %.  Usury,  penalty, . 
forfeiture.  Also  a  misdemeanor  punishable  with  a  fine  of  $500  or  six 
months'  imprisonment  or  both.  Interest  begins  to  run  on  open  account 
from  date  of  last  item.  Judgments  bear  7  %,  Grace  allowed.  Sundays 
and  holidays  excluded  in  computing  grace.  Legal  holidays  :  none  peculiar 
to  State. 

Tennessee. — Legal  rate  6  %.  Usury,  penalty,  forfeiture  of  interest,  also 
a  misdemeanor.  Grace  except  on  sight  paper.  Paper  falling  due  on  ist 
January,  4th  of  July,  25th  of  December,  or  any  National  or  State  Fast  or 
Thanksgiving  day,  is  payable  the  day  previous,  unless  such  day  is  Sunday, 
when  it  becomes  payable  the  preceding  Saturday. 

Texas. — Legal  rate  6$.  Maximum  contract  rate  10$.  Penalty  of 
usury,  forfeiture  of  interest.  When  paid,  double  the  amount  of  interest  may 
be  recovered  by  suit  brought  within  two  years.  Grace  allowed.  Legal 
holidays  :  January  ist,  February  22d,  March  2d,  April  ist,  July  4th,  Decem- 
ber 25th,  Thanksgiving,  State  and  National  general  Election  days.  If  any 
of  these  days  fall  on  Sunday,  the  Monday  following  is  the  legal  holiday. 
Presentation  of  paper  may  be  made  the  Saturday  before. 


INTEREST — GRACE — LEGAL   HOLIDAYS.  2/5 

Utah  Territory. — Legal  rate  8  %.  Contract  rate  unlimited.  Judgments 
bear  rate  of  interest  of  contracts  on  which  they  are  recovered.  No  grace 
allowed.  Acceptances  must  be  in  writing.  Legal  holidays :  Sundays, 
January  1st,  February  22d,  first  Saturday  in  April,  May  soth,  July  4th  and 
24th,  first  Monday  in  September,  December  2 5th,  and  Thanksgiving  or  Fast 
days.  If  holidays  fall  on  Sunday,  Monday  following  is  observed. 

Vermont. — Legal  rate  6%.  Usury,  penalty,  forfeiture  of  excess  over 
legal  rate.  Judgments  bear  6$.  No  grace  allowed  on  paper  made  and 
payable  in  this  State.  Paper  due  on  Sundays  or  legal  holidays  payable  fol- 
lowing business  day. 

Virginia. — Legal  rate  6  %.  Corporations  not  limited  to  this  rate.  Usury, 
penalty,  forfeiture  of  all  interest.  When  usurious  interest  is  paid  upon 
contract  it  is  credited  as  part  payment  of  principal.  Judgments  bear  6%. 
Corporations  cannot  plead  usury.  Grace  allowed  on  all  save  sight  paper. 
Legal  holidays  :  January  1st  and  igth,  February  22d,  July  4th,  first  Mon- 
day in  September,  December  25th,  Thanksgiving  and  Fast  days.  Paper  due 
on  a  Sunday  or  legal  holiday  is  payable  the  preceding  business  day.  Holi- 
days falling  on  Sunday  are  observed  the  Monday  following. 

Washington. — Legal  rate  8  %.  Contract  rate  unlimited.  Grace,  three 
days,  allowed  on  all  paper  unless  paper  contains  an  expressed  stipulation  to 
the  contrary.  Where  the  last  day  of  grace  falls  on  a  holiday  the  holiday  is 
not  counted  and  the  paper  is  payable  the  preceding  business  day.  Legal 
holidays  :  Sundays,  July  4th,  December  25th,  January  1st,  February  22d, 
Decoration  day,  general  Election  and  Thanksgiving  days. 

West  Virginia. — Legal  rate  6  %.  Usury  may  be  pleaded  and  excess  of 
interest  over  legal  rate  forfeited.  Corporations  not  limited  to  legal  rate. 
Judgments  bear  6  %.  Paper  due  on  Sunday  or  a  legal  holiday  is  payable  the 
preceding  business  day.  Notice  of  protest  however  need  not  be  given  until 
the  following  business  day.  Legal  holidays  :  January  1st,  February  22d, 
July  4th,  day  of  national  Thanksgiving,  and  Christmas.  Grace  allowed. 

Wisconsin. — Legal  rate  6$.  Maximum  contract  rate  10$.  Contracts 
reserving  more  than  10$  valid  for  principal  only.  The  payer  of  more  than 
10  %  interest  may  recover  triple  the  amount  paid.  Paper  maturing  on  a  legal 
holiday  payable  the  preceding  business  day. 

Wyoming. — Legal  rate  12  %.  Contract  rate  unlimited.  Unsettled  ac- 
counts bear  interest  after  thirty  days.  Grace  allowed.  Legal  holidays : 
January  ist,  February  22d,  May  isth,  July  4th,  Thanksgiving  day,  and 
December  25th. 


In  the  case  of  paper  due  in  a  State  other  than  the  one 
in  which  the  holder  resides,  the  best  course  to  pursue  is 


2/6         PRINCIPLES  AND  PRACTICE   OF  FINANCE. 

to  deposit  the  same  in  his  local  bank  for  collection,  the 
bank  forwarding  the  paper  to  the  place  of  collection  and 
becoming  responsible  to  the  depositor  for  any  omission  of 
duty  on  its  or  its  agents'  part  whereby  any  obligor  may  be 
released  from  payment. 

In  the  case  of  obligations  maturing  in  a  State  not  the 
domicile  of  the  maker,  the  best  course  is  to  deposit  with 
the  local  bank  funds  sufficient  to  meet  the  same,  directing 
them  to  take  up  the  paper. 

This  subject  is  more  fully  treated  in  various  parts  of 
this  work,  especially  in  drafts,  checks,  bills  of  exchange, 
and  transmission  of  money. 


GLOSSARY. 


A 

ABANDONEE 

The  person  to  whom  a  right  or  thing  is  relinquished,  surrendered,  or 
abandoned. 

ABANDONER 

One  who  abandons. 

ABANDONMENT 

Surrender  or  relinquishment  of  a  privilege,  right,  or  possession. 
(Marine  law)  The  abandonment  by  the  master  or  owner  of  his  ship 
and  its  freight  to  a  creditor  in  satisfaction  of  a  contract.  (Marine 
insurance)  The  surrender  to  the  insurers  of  such  remaining  portion  of 
the  insured  property  after  the  happening  of  the  event  insured  against. 
This  is  done  to  hold  the  insurer  for  the  total  amount  of  the  insurance. 
(Customs)  The  abandoning  of  dutiable  goods  to  the  government  to 
escape  payment  of  duties. 

ABATEMENT 

Reduction.  The  measure  of  decrease.  Refunding  of  duties.  The 
amount  deducted  from  the  first  amount  of  a  tax  bill. 

ABBAS 

An  Eastern  weight  for  pearls,  supposed  to  be  2^  grains  Troy. 

ACCEPTANCE 

The  obligation  of  the  drawee  to  pay  a  draft  or  bill  of  exchange, 
generally  evidenced  by  his  writing  the  word  "  Accepted,"  and  his 
signature  on  the  paper  the  payment  of  which  is  assumed.  Accept- 
ances are  "general"  when  unlimited  by  any  qualifying  words, 
"  special "  when  payable  at  a  specified  time  and  place,  and  "  qualified  'r 
when  accepted  for  a  less  sum  than  is  named  on  the  face  of  the  paper, 
"supra  protest  "  or  "for  honor,"  when  accepted  by  a  person  not  the 
drawee  to  save  the  honor  or  credit  of  the  drawer  or  an  endorser  after 
refusal  of  the  drawee  to  accept.  Also  the  paper  accepted,  or  the  sum 
named  therein. 

277 


2/8  GLOSSARY. 

ACCOMMODATION  ENDORSER 

An  endorser  who,  without  consideration  or  protection,  endorses  the 
paper  of  another  not  payable  to  himself. 

ACCOMMODATION  PAPER 

Negotiable  paper  drawn,  accepted,  or  endorsed  without  consideration 
by  one  to  enable  another  to  obtain  credit  or  raise  money  on  it. 

ACCOUNT 

A  statement  of  the  items  and  amounts  due  by  one  person  to  another 
for  goods,  services,  etc.  ;  a  course  of  business  dealings. 

ACCOUNTABLE  RECEIPT 

A  receipt  of  money  or  goods  to  be  accounted  for. 

ACCOUNT  CURRENT 

(Open  Account)     A  course  of  business  dealings  still  continuing. 

ACCOUNT  RENDERED 

A  statement  presented  by  a  creditor  to  his  debtor,  showing  the  charges 
of  the  former  against  the  latter. 

ACCOUNT  SALES 

A  statement  rendered  by  a  broker,  factor,  or  agent  to  his  principal. 

ACCOUNT  STATED 

An  account  or  statement  which  has  been  acknowledged  as  correct  by 
the  debtor,  or  to  which  he  has  not  objected  within  reasonable  time, 
showing  the  result  of  a  course  of  transactions. 

ACKNOWLEDGMENT 

A  written  admission  made  before  an  officer  empowered  to  take 
acknowledgments,  such  as  a  notary,  commissioner,  or  judge,  stating 
that  the  person  making  the  same  executed  the  paper  for  the  "pur- 
poses therein  stated,"  etc.  ;  generally  attached  to  bonds,  mortgages, 
deeds,  etc. 

.ACT  OF  HONOR 

An  instrument  executed  by  a  person  not  the  drawee,  after  protest  of 
draft  or  bill  of  exchange,  to  save  the  honor  or  credit  of  any  party 
thereto. 

ACTUARY 

An  expert  in  the  application  of  the  doctrine  of  annuities,  especially 
with  reference  to  insurance.  Commonly  one  of  the  principal  officers 
of  life  insurance  companies,  whose  duties  are  principally  to  deduce 
from  statistics,  data,  mortuary  tables,  etc.,  the  value  of  contingent 
.assets,  the  amount  of  accruing  indebtedness,  the  proper  premium 
charges,  and  to  furnish  statements  of  the  company's  condition. 


GLOSSARY.  2/9 

ADJUDICATE 

To  decide,  to  award,  to  settle. 

ADJUDICATION 

Award,  decision. 

ADJUST 

To  settle  ;  to  agree  upon. 

ADJUSTMENT 

(In  marine  insurance)  The  ascertaining  and  agreeing  upon  the  final 
indemnity  to  which  the  insured  is  entitled,  also  the  part  of  such 
indemnity  for  which  each  insurer  is  liable. 

ADMINISTRATOR 

(Legal)  One  who  by  virtue  of  authority  from  a  proper  court  has 
charge  of  the  personal  property  of  an  intestate. 

AD  VALOREM  DUTY 

A  tax  calculated  and  imposed  upon  the  value,  and  not  upon  the 
weight,  numbers,  or  packages  of  dutiable  articles. 

ADVANCE  NOTE  (or  Bill) 

A  draft  or  demand  on  the  owner  or  agent  of  a  ship  or  vessel.  Wages 
paid  to  sailors  by  the  master  or  agent  of  a  vessel  on  the  signing 
of  articles. 

ADVANCES 

Payments  made  on  consignments  before  sale  of  the  merchandise  con- 
signed. Loans  on  bills  of  lading  ;  the  delivery  of  a  value  before  an 
equivalent  is  received  ;  contributions  to  capital  or  stock  ;  increase  in 
price. 

ADVENTURE 

A  commercial  venture  or  enterprise  in  which  one  or  more  merchants 
are  concerned  for  their  individual  or  joint  account. 

ADVENTURE  (BILL  OF) 

A  document  issued  by  and  bearing  the  signature  of  a  merchant,  ship- 
owner, or  his  agent,  indicating  that  merchandise  aboard  a  particular 
vessel  is  at  the  risk  of  another  person,  the  maker  of  such  bill  being 
liable  solely  for  its  safe  delivery. 

ADVICE 

Information  from  one  or  more  persons  to  others  interested  in  a  joint 
transaction  ;  as  notices,  letters,  drafts,  or  demands  drawn,  etc. 

AGENCY 

The  office  or  place  of  business  of  an  agent,  factor,  or  representative 
also  the  powers  or  duties  of  such  agent,  factor,  or  representative. 


280  GLOSSARY. 

AGENT 

One  acting  in  place  or  as  the  representative  of  another. 

AGIO  (also  spelled  AYGIO) 

Premium  of  exchange  ;  premium  or  percentage  of  a  better  sort  of 
money  when  it  is  given  in  exchange  for  an  inferior  sort.  The  pre- 
mium or  discount  on  foreign  bills  of  exchange  is  sometimes  called 
agio  (Webster).  The  premium  on  depreciated  currencies  is  called 
disagio,  also  the  depreciation  in  value  owing  to  abrasion  of  coins. 

AGIOTAGE 

Rate  or  price  of  exchange  ;  speculation  in  exchange,  bullion,  stocks, 
etc. 

AGREEMENT  (MEMORANDUM  OF) 

An  instrument  or  document  written  or  printed  bearing  the  signatures 
of  the  parties  thereto,  stating  the  subject  of  their  mutual  contract. 

AGREEMENT  OF  INSURANCE 

A  contract  preliminary  to  the  issue  of  the  policy  between  the  insurer 
and  the  insured,  in  regard  to  the  terms  and  time  of  delivery  of  the 
policy. 

ALLOWANCE 

A  deduction  for  tare,  tret,  breakage,  etc.  A  limited  deviation  from 
exact  conformity  to  the  legal  standard  in  the  fineness  and  weight  of 


ALLOY 

v.  The  introduction  of  a  baser  metal  into  a  more  valuable  one  to 
decrease  its  value,  n.  The  combination  of  a  less  valuable  with  a 
more  valuable  metal  or  metals. 

ANNUITY 

A  sum  payable  yearly,  to  continue  for  a  number  of  years,  for  life,  or 
for  ever  ;  an  annual  allowance  (Webster). 

APPORTIONMENT 

A  dividing  into  proportions  or  shares. 

APPRAISAL 

See  Appraisement. 

APPRAISE 

To  fix  a  price  upon,  to  set  a  value.  The  price  or  value  set  by  ap- 
praisers named  by  individuals  or  appointed  by  law. 

APPRAISEMENT 

Act  of  appraising  ;  the  price  set  on  a  value  or  service. 


GLOSSARY.  28l 

ARBITER  (ARBITRATOR) 

A  person  to  whom  parties  have  referred  their  differences  for  decision  ; 
a  referee,  an  umpire. 

ARBITRAGE 

The  agreed  relative  value  of  coin,  currency,  stocks,  or  bonds. 
(Enc.  Brit.) — Arbitrage  proper  is  a  separate,  distinct,  and  well  defined 
business,  with  three  main  branches.  Two  of  these,  viz. ,  arbitrage  or 
arbitration  in  bullion  and  coins,  and  arbitration  in  bills,  also  called 
the  arbitration  of  exchanges,  fall  within  the  business  of  bullion  deal- 
ing and  banking  respectively.  The  third,  arbitrage  in  stocks  and 
shares,  is  arbitrage  properly  so  called,  and  is  understood  whenever  the 
word  is  mentioned  without  qualification  among  business  men. 

ARBITRATION 

The  referring  for  decision  of  a  controversy  or  dispute  to  an  arbitrator 
or  arbitrators,  or  referee  or  umpire. 

ARBITRATION  BOND 

A  bond  binding  a  party  or  the  parties  to  a  dispute  or  controversy  to 
accept  the  decision  of  the  person  or  persons  to  whom  such  question  is 
referred. 

ASKING  PRICE 

The  price  at  which  a  value  or  right  is  offered  for  sale. 

ASSIGN 

To  surrender  or  transfer  to  another  (the  assignee).  In  matters  of 
bankruptcy  the  instrument  by  which  this  transfer  is  effected  is  known 
as  an  assignment. 

ASSIZEMENT 

The  inspection  by  a  person  legally  authorized  and  empowered,  called 
an  assizer,  of  weights  and  measures  and  the  qualities  of  commodities. 

ASSOCIATION 

A  union  incorporated  or  unincorporated  of  persons  for  a  common 
purpose. 

ASSOCIATION,  ARTICLES  OF 

The  contract  under  which  members  of  an  association  join  together  for 
a  common  purpose. 

ASSURANCE  (Insurance) 

A  contract  for  the  payment  of  a  sum  on  the  occurrence  of  a  certain 
event,  as  loss,  death,  etc. 

ASSURED 

The  person  or  persons  in  whose  favor  a  policy  of  insurance  is  written. 


282  GLOSSAR  Y. 

ATTORNEY 

A  lawyer  ;  a  counsellor  at  law. 

ATTORNEY  IN  FACT 

One  appointed  to  act  in  the  place  or  stead  of  another. 

ATTORNEY,  POWER  OF 

The  instrument  by  which  such  appointment  is  made. 

AVERAGE 

"  A  contribution  made  by  all  the  parties  concerned  in  a  sea  adventure, 
according  to  the  interest  of  each,  to  make  good  a  specific  loss  or 
expense  incurred  for  the  benefit  of  all,  sometimes  called  '  general 
average.'  A  small  duty  paid  by  shippers  of  goods  to  the  master  of 
the  ship  over  and  above  the  freight,  in  consideration  of  his  special 
care  of  the  cargo,  noted  in  bills  of  lading  by  the  phrase  '  With  primage 
and  average  accustomed.'  "  (Wor.) 

AVERAGE  ADJUSTER 

(Marine  Insurance)  A  skilled  accountant  employed  to  average  or 
ascertain  the  amount  to  be  paid  by  each  of  the  parties  interested  in 
the  loss  sustained  for  the  general  account. 

AVERAGE  BOND 

(Marine  Insurance).  A  bond  of  consignees  of  cargo  given  to  the 
owner  or  master  of  a  vessel  guaranteeing  when  ascertained  the  amount 
of  their  contributions  to  a  general  average. 

AVERAGE,  FREE  OF 

A  list  of  articles  excepted  from  liability  to  particular  average  on  the 
part  of  underwriters,  which  is  generally  attached  to  policies  of  marine 
insurance. 

AVERAGE  OF  ACCOUNTS 

The  average  date  on  which  accounts  fall  or  become  due. 

AWARD 

The  decision  of  arbitrators,  referees,  or  umpires. 

B 

BALANCE 

The  difference  between  the  creditor  and  debtor  sides  of  an  account  ; 
the  sum  necessary  to  make  the  debtor  and  creditor  sides  equal. 

BALANCE  OF  TRADE 

Excess  in  value  between  exports  and  imports  of  a  country. 
BALLAST 

Any  comparatively  valueless  material  carried  in  a  vessel  for  the 
purpose  of  making  it  draw  sufficient  water  to  enable  it  to  be  navigated 
to  advantage,  and  on  which  a  trifling  or  no  freight  is  paid. 


GLOSSARY.  283 

BANCO 

In  some  countries  where  banks  keep  their  accounts  in  a  currency  other 
than  that  in  common  use  ;  the  money  in  which  such  account  is  kept. 

BANK 

(P.  68)  An  institution  for  receiving  and  lending  money. 

BANK  ACCOUNT 

A  sum  deposited  in  a  bank,  which  may  be  drawn  out  on  the  depositor's 
written  order. 

BANK  BILL 

A  bank  note,  a  note,  bill,  or  draft,  or  demand  by  one  bank  on  another. 

BANK  BOOK 

The  book  in  which  the  depositor  receives  credit  for  amounts  deposited 
and  in  which  his  drafts  or  checks  are  charged. 

BANK  CREDIT 

A  credit  extended  by  a  bank. 

BANKER 

(See  p.  178)  The  officer  of  a  bank,  or  one  who  deals  in  money  or 
credits. 

BANKER'S  NOTE 

The  note  of  a  private  banker  or  unincorporated  bank. 

BANK  HOLIDAY 

In  Great  Britain  a  holiday  on  which  banks  are  allowed  to  be  closed. 
Obligations  due  on  this  day  are  usually  payable  the  next  secular  day. 

BANK  NOTE 

A  demand  promissory  note  issued  by  a  bank  by  authority  of  law  (see 
Money  of  the  United  States,  p.  60). 

BANK  POST  BILL 

A  bill  issued  for  not  less  than  ten  pounds  by  the  Bank  of  England 
without  charge. 

BANKRUPT 

An  insolvent  person  ;  one  whose  estate  is  being  administered  by  a 
receiver  or  assignee  for  the  benefit  of  his  creditors. 

BANKRUPTCY,  ASSIGNEE  IN 

The  assignee  of  the  property  of  a  bankrupt. 

BANKRUPTCY,  INVOLUNTARY 

When  declared  on  the  petition  of  creditors,  showing  the  bankrupt 
should  not  be  continued  in  possession  of  his  estate,  is  termed  invol- 
untary. 


284  GLOSSARY. 

BANKRUPTCY,  REGISTER  IN 

An  officer  appointed  by  and  under  the. control  of  the  Court  to  adjudi- 
cate upon  the  affairs  of  bankrupts. 

BANKRUPTCY,  VOLUNTARY 

When  declared  on  the  petition  of  the  bankrupt,  asking  leave  to  trans- 
fer or  assign  his  estate  for  the  benefit  of  creditors,  is  called  voluntary. 

BANK  STOCK 

Stock  issued  by  a  bank. 

BARGAIN 

A  contract  or  agreement  between  two  or  more  parties. 

BARRATRY 

(Wor.)  Act  or  offence  of  the  master  of  a  ship  or  of  the  marines,  by 
which  the  owners  or  insurers  are  defrauded. 

BARTER 

(See  Barter,  p.  3.) 

BARTERER 

One  who  barters  or  traffics  in  commodities. 

BAUBEE 

(Wor.)     A  half-penny. 

BAZAAR 

A  market-place. 

BEAR 

(See  Brokers.)  One  who  contracts  to  sell  stocks,  provisions,  or  com- 
modities, or  things,  not  owned  by  him,  to  be  delivered  at  a  future 
time,  for  a  certain  price,  and  is  consequently  interested  in  depressing 
their  value  ;  one  who  is  endeavoring  to  decrease  the  price  of  a  stock 
or  commodity. 

BETTERMENTS 

Improvements  on  real  property,  other  than  ordinary  repairs,  which 
add  to  its  value. 

BID 

An  offer. 

BILL 

A  statement  of  the  items  and  amounts  of  articles  or  values  furnished, 
or  of  services  rendered  by  one  person  to  another. 

BILL  OF  ADVENTURE 

(See  Adventure,  Bill  of.) 


GLOSSARY.  285 

BILL  OF  CREDIT 

A  notification  by  one  person  to  another  to  extend  to  the  person 
named  in  the  bill  the  credit  therein  stated. 

BILL  OF  COSTS 

An  itemized  statement  of  the  taxable  costs  of  a  litigant. 

BILL  OF  ENTRY 

A  statement,  written  or  printed,  signed  by  the  importer,  of  goods 
entered  at  a  custom  house. 

BILL  OF  EXCHANGE 

(See  page  38.) 

BILL  OF  HEALTH 

A  certificate  by  the  proper  authorities  as  to  the  state  of  health  in  a 
vessel  on  leaving  or  arriving  in  port. 

BILL  OF  LADING 

A  receipt  given  to  shippers  by  vessels  or  transportation  companies, 
setting  forth  the  goods  placed  in  their  care  for  transportation. 

BILL  OF  PARCELS 

An  account  of  goods  sold  given  by  the  seller  to  the  buyer,  containing 
the  quantities  and  prices  of  the  articles,  with  a  statement  of  the  date 
and  terms  of  credit.  (Wor.) 

BILL  OF  SALE 

An  instrument  conveying  the  right,  title,  or  interest  in  personal 
property. 

BILL  OF  SIGHT 

A  form  of  entry  at  the  custom  house  by  which  goods,  respecting 
which  the  importer  is  not  possessed  of  full  information,  may  be  pro- 
visionally landed  for  examination.  (Wor.) 

BILL  OF  STORES 

A  custom-house  license  permitting  merchantmen  to  carry  free  of  cus- 
toms duties  stores  and  provisions  necessary  for  a  voyage. 

BILL  OF  SUFFERANCE 

A  coasting  license  permitting  vessels  to  trade  from  port  to  port  with- 
out paying  customs  duties,  the  dutiable  goods  being  landed  at  suffer- 
ance wharves. 

BILLS  PAYABLE 

The  outstanding  unpaid  notes  or  acceptances  made  and  issued  by  an 
individual  or  firm. 

BILLS  RECEIVABLE 

The  unpaid  promissory  notes  or  acceptances  of  others  held  by  an 
individual  or  firm. 


286  GLOSSARY. 

BI-METALL1C 

A  double  metallic  monetary  system,  as  gold  and  silver. 

BLANK 

A  printed  form  containing  unfilled  spaces  or  lines  to  be  filled  in  to 
suit  the  particular  occasion. 

BOND 

A  written  obligation  under  seal  to  do  or  refrain  from  doing  a  certain 
act  or  thing.  When  a  penalty  is  attached  for  failure  to  perform  the 
contract,  the  bond  is  known  as  a  "  penal  bond." 

BOND 

(See  Stocks,  Bonds,  etc.,  page  209.) 

BONDED  DEBT 

That  part  of  the  debt  of  a  corporation  represented  by  its  outstanding 
bonds. 

BONDED  WAREHOUSE 

A  building  licensed  by  the  customs  authorities  to  receive  and  keep 
goods  in  store  prior  to  the  payment  of  customs  or  internal-revenue 
duties  thereon. 

BOND  FOR  LAND 

(or  bond  for  a  deed)  A  bond  given  by  the  seller  of  land  to  the  one 
agreeing  to  buy  it,  binding  him  to  convey  on  receiving  the  agreed 
price. 

BOND,  IN 

Goods  in  bond  are  in  charge  of  the  customs  authorities,  and  are  stored 
in  a  bonded  warehouse  or  store. 

BOND  OF  INDEMNITY 

A  bond  conditioned  to  indemnify  the  obligee  against  some  loss  or 
liability. 

BOOK  OF  ORIGINAL  ENTRY 

A  book  in  which  the  first  written  entry  of  a  transaction  is  made,  such 
as  the  blotter  or  sales  books,  in  which  entries  are  or  should  be  made 
at  the  time  of  the  sale  or  transaction. 

BOOKKEEPER 

An  accountant ;  one  who  keeps  books. 

BOOKS 

In  commerce  technically  means  only  the  Ledger,  Journal,  Day  Book, 
Cash  Book,  Bills  Receivable,  and  Bills  Payable,  or  books  the  entries 
in  which  are  taken  from  other  books  or  memoranda. 


GLOSSARY.  287 

BOOKS  OF  ACCOUNT 

Books  containing  a  record  of  the  pecuniary  dealings  of  a  person  or 
persons.  In  cases  of  corporations  used  in  contradistinction  to  the 
records,  or  books  in  which  a  record  of  the  meetings,  resolutions,  etc., 
of  their  stockholders  and  Board  of  Directors  is  kept. 

BOTTOMRY 

Borrowing  money  on  a  pledge  of  the  bottom  of  the  ship  as  security. 

BOTTOMRY  BOND 

A  mortgage  of  the  ship  as  collateral  for  a  loan. 

BOUNTY 

A  premium  offered  by  the  government  to  men  engaged  in  certain 
industries,  such  as  the  bounty  at  one  time  paid  to  sugar  growers. 
When  paid  to  steamship  companies  it  is  generally  called  a  subsidy. 

BROKER 

(See  page  182.) 

BULL 

One  whose  aim  is  to  raise  the  price  of  stocks  or  merchandise. 

BULLING 

Raising  or  trying  to  increase  the  price  of  stocks,  etc. 

BULLION 

(See  page  13.) 

BUYER  THREE 

A  technical  expression  used  in  Wall  Street,  meaning  the  purchase 
must  be  consummated  in  three  days. 

C 

CALL 

A  summons  or  request  from  a  superior  officer  of  a  government  or 
corporation  requiring  representatives  or  others  to  assemble.  An 
assessment  on  the  stockholders  of  a  corporation  or  joint-stock  com- 
pany, or  members  of  a  mutual  insurance  company,  for  the  payment 
of  assessments  on  insurance  policies,  or  in  the  case  of  other  corpora- 
tions for  the  payment  of  instalments  of  their  unpaid  subscriptions,  or 
for  their  promised,  or  legally  liable,  contributions  for  losses.  A 
request  to  holders  of  bonds  to  present  the  same  for  payment  and 
cancellation. 

CALL  LOAN 

A  loan  subject  to  payment  on  the  call  and  demand  of  the  lender. 


288  GLOSSARY. 

CAPITAL 

(Page  27.)  The  wealth  employed  in  carrying  on  a  particular  trade, 
manufacture,  business,  or  undertaking  ;  stock  in  trade  ;  the  actual 
estate,  whether  in  money  or  property,  which  is  owned  or  employed 
by  an  individual,  firm,  or  corporation  in  business.  In  the  case  of  a 
corporation  it  is  the  aggregate  of  the  sum  subscribed  and  paid  in,  or 
secured  to  be  paid  in,  with  the  addition  of  undivided  gains.  Gen- 
erally speaking,  sums  received  from  the  sale  of  stock  are  capital, 
whereas  those  received  from  sales  of  bonds  are  not  capital,  but 
borrowed  money. 

CAPITALIST 

One  who  has  capital ;  a  man  of  large  property. 

CAPITALIZE 

To  supply  with  capital. 

CASH 

Ready  money ;  money  at  hand  or  at  command. 

CASH  CREDIT 

A  credit  to  an  agreed  amount  extended  by  a  banker,  generally  on 
deposit  of  security  or  guarantee  of  repayment. 

CASHIER 

One  who  has  charge  of  cash. 

CHANGE 

Exchange,  barter.  Also,  an  abbreviation  for  Exchange,  a  meeting- 
place.  Coins  of  lower  denominations.  The  sum  of  money  handed 
the  seller  in  excess  of  the  price  of  the  article  sold. 

CHARGE 

A  demand,  a  claim.     The  price  of  an  article,  right,  or  service. 

CHARGES,  OUTWARD 

The  pilotage  and  other  charges  incurred  by  a  vessel  leaving  port. 

CHARTER 

The  instrument  granted  by  a  superior  power  to  an  inferior,  defining 
the  latter's  rights  and  powers,  as  the  charters  granted  by  States  to 
cities,  towns,  and  corporations. 

CHARTER  PARTY 

A  written  agreement  by  which  a  ship  owner  lets  a  vessel  to  another. 

CHATTEL 

Any  movable  property  or  goods,  as  money,  stocks,  bonds,  furniture, 
plate,  horses,  etc.  Everything  but  real  estate  or  a  freehold. 


GLOSSARY.  289 

CHATTEL  MORTGAGE 

A  mortgage  on  chattels. 

CHECK 

(See  page  253.) 

CHECK-BOOK 

A  book  containing  blank  checks  and  stubs. 

CLAIM 

A  demand.     The  amount  of  anything  demanded. 

CLAIMANT 

One  making  claim  or  demand. 

CLEAR 

To  free  from  encumbrance  or  detention.  In  the  case  of  a  vessel  the 
furnishing  and  procuring  the  necessary  customs  papers,  and  such 
compliance  with  port  regulations  as  will  permit  the  vessel  to  "  clear" 
or  sail.  In  the  case  of  goods,  the  payment  of  duties  or  taxes  neces- 
sary to  relieve  them  from  governmental  restraint. 

CLEARING 

The  daily  balance  of  banks'  demands  against  each  other  at  the 
Clearing  House.  The  sailing  of  a  vessel. 

C.  O.  D. 

Collect  on  delivery. 
COLLECTOR 

A  Federal  officer  empowered  to  collect  customs  duties.     A  person 

employed  to  collect. 

COLLUSION 

Secret  agreement  for  a  fraudulent  or  harmful  purpose. 

COMMERCE 

Barter,  trade,  exchange,  traffic.  Foreign  commerce  is  that  carried 
on  between  nations.  Inland  trade  (commonly  called  '*  Domestic  "  or 
"  Internal  trade")  is  an  exchange  of  commodities  within  the  territory 
of  one  country. 

COMMERCIAL  PAPER 

Bills  of  exchange,  drafts,  notes,  etc. ,  drawn  against  the  purchaser  of 
merchandise. 

COMMISSION 

(Wor.)  A  document  or  writing  investing  one  with  authority.  The 
order  by  which  one  person  buys  or  sells  goods,  securities,  etc.,  for 
another.  The  percentage  or  compensation  which  an  agent,  factor, 
salesman,  commission  merchant,  or  broker  charges  or  receives  for 
services.  Two  or  more  persons  appointed  for  the  doing  or  investi- 
gating of  a  particular  thing. 


290  GLOSSARY. 

COMMISSION  AGENT 

An  agent  who  transacts  business  for  others  on  commission. 

COMMISSIONER 

One  empowered  to  act  in  some  matter  or  business  for  one  or  more 
persons  or  a  government. 

COMMISSIONER  OF  DEEDS 

A  person  authorized  by  a  State  or  country  to  take  acknowledgments 
of  deeds,  etc. 

COMMISSION  MERCHANT 

One  who  buys  or  sells  goods  for  another  on  commission,  or  who  acts 
as  agent  in  buying  and  selling,  receiving  for  his  services  a  commission. 

COMMON  CARRIER 

Railroads,  express  companies,  steamship  lines,  and  others  engaged  in 
the  business  of  carrying  persons  or  freight. 

COMPANY 

(Page  200.) 

COMPARISONS 

(Stock  Exchange.)  The  act  of  comparing  the  sellings  and  purchases 
of  stock  by  the  different  sellers  and  buyers. 

COMPLAINANT 

A  plaintiff,  a  claimant,  the  person  who  begins  a  suit. 

COMPOSITION 

An  agreement  between  a  debtor  and  his  creditors,  by  which  the  latter 
accept  in  full  payment  of  their  claims  a  portion  of  the  amounts  due. 
The  sum  or  rate  paid  or  agreed  to  be  paid  in  compounding  with 
creditors. 

COMPOSITION  DEED 

A  contract  between  creditors  and  their  debtor  effecting  a  composition, 
usually  in  a  manner  to  bind  the  creditors  not  to  molest  the  debtor. 

COMPOUND 

(See  Composition  and  Compromise.) 

COMPROMISE 

.     Mutual  concession.     The  agreement  arrived  at. 

CONSIGNEE 

The  person  to  whom  a  commodity,  right,  or  thing  is  consigned. 

CONSIGNMENT 

The  goods  forwarded  by  a  consignor. 


GLOSSARY.  291 

CONSIGNOR 

One  who  consigns  or  entrusts  merchandise  to  another. 

CONSOLS 

A  term  used  to  denote  a  considerable  portion  of  the  public  debt  of 
Great  Britain,  more  correctly  known  as  the  three  per  cent  Consoli- 
dated Annuities. 

CONSUL 

An  official  agent  of  a  government,  accredited  to  a  foreign  power, 
whose  office  is  to  protect  the  commercial  interests  of  the  country  he 
represents. 

CONTINGENT 

The  interest  of  a  particular  party  in  a  joint  speculation  or  business 
venture. 

COUPON 

An  order  attached  to  bonds  for  the  payment  of  interest. 

CREDITOR 

One  who  extends  credit  to  another ;  one  to  whom  another  is 
indebted. 

CUSTOM  HOUSE 

A  Federal  building  or  office  where  vessels  and  merchandise  are 
entered,  and  duties  upon  dutiable  imported  goods  are  collected. 

CUSTOM-HOUSE  BROKER 

A  person  who  acts  for  others  in  the  entry  or  clearance  of  ships,  the 
entry  and  payment  of  taxes  on  merchandise,  and  the  transaction  of 
custom-house  business  generally. 

CUSTOMS 

Import  duties,  as  distinguished  from  internal- revenue  duties  ;  taxes 
collected  at  a  custom  house. 


DEBENTURE 

(Wor.)  A  custom-house  certificate,  entitling  the  exporter  of  imported 
goods  to  a  drawback  of  the  duties  paid  on  their  importation.  An 
instrument  in  some  government  departments  by  which  the  govern- 
ment is  charged  to  pay  to  a  creditor  or  to  his  assigns  the  sum  found 
due  on  auditing  his  accounts. 

DEBT 

That  which  one  person  owes  to  another.  (Wor.)  A  sum  of  money 
due  by  certain  or  express  agreement. 


292  GLOSSARY. 

DEBTEE 

A  creditor. 

DEBTOR 

(Wor.)     One  who  owes  anything  to  another. 

DECISION 

(Wor.)  The  judgment  or  determination  given  by  a  judicial  tribunal ; 
the  report  of  such  determination. 

DECLARATION 

A  publication,  statement,  or  formal  announcement  (thus  declaration 
of  dividends).  The  paper,  message,  or  letter  by  which  the  declara- 
tion is  made. 

DECREASE 

An  allowance  by  the  revenue  officers  to  importers  of  liquors  for  loss 
by  leakage  while  in  bond,  on  which  loss  no  duty  is  charged. 

DEDUCTION 

Taking  away  ;  abatement  ;  the  thing  or  amount  deducted. 

DEED 

A  writing  authenticated  by  the  seal  of  the  person  whose  mind  it 
purports  to  declare.  More  specifically  such  a  writing  made  for  the 
purpose  of  conveying  real  estate. 

DEFAULT 

A  failure  to  perform  within  the  agreed  time  an  agreement,  contract, 
or  condition,  as  default  in  interest. 

DEFAULTER 

One  who  fails  to  properly  account  for  or  make  return  of  values 
entrusted  to  his  care. 

DEFENDANT 

In  law  the  person  against  whom  redress  is  sought ;  the  one  accused 
of  wrong,  the  person  attacked,  the  one  defending. 

DEFICIENCY 

Lack  of  the  necessary  quantity  or  amount  ;  the  sum  required  to  make 
up  a  given  amount. 

DEFORCIATION 

A  seizure  of  goods  for  the  satisfaction  of  a  lawful  debt. 

DEFRAUDER 

A  swindler,  a  cheat ;  one  guilty  of  fraud. 

DEFRAY 

To  compensate  for,  settle,  pay. 


GLOSSARY,  293 

DEKADRACHM 

(Ten  drachm.)     An  ancient  silver  coin  of  the  value  of  ten  drachms. 

DEL  CREDERE 

The  guarantee  of  a  factor  or  agent  to  his  principal  of  the  credit  or 
solvency  of  the  persons  to  whom  the  goods  of  such  principal  are  sold. 
Also  used  to  indicate  the  reinsurance  by  one  insurance  company  of 
its  policies  in  another. 

DEL  CREDERE  COMMISSION 

A  commission  charged  for  guaranteeing  the  credit  or  solvency  of 
persons  to  whom  goods  are  sold. 

DELEGATE 

A  person  appointed  or  sent  by  another  in  his  interest  to  perform  a 
certain  act. 

DEMURRAGE 

A  per  diem  allowance  granted  to  the  owner  or  his  agents  for  the 
detention  in  port  of  a  vessel  beyond  the  time  named  in  the  charter 
party. 

DEPARTMENT 

(Web.)  Subdivision  of  business  or  official  duty.  One  of  the  princi- 
pal divisions  of  executive  government. 

DEPONENT 

(Web. )  One  who  deposes  or  testifies  under  oath  ;  one  who  gives 
evidence  ;  usually  one  who  testifies  in  writing. 

DEPOSIT 

(Web.)  To  lodge,  place,  or  put  in  one's  hands  for  safe  keeping  ;  to 
commit  to  the  custody  of  another.  Also  the  thing  deposited. 
Money  lodged  with  a  party  as  earnest  or  security  for  the  performance 
of  a  duty  assumed  by  the  person  depositing. 

DEPOSITARY 

The  receiver  of  a  thing  in  trust. 

DEPOSITION 

Written  evidence  taken  before  a  duly  authorized  person. 

DEPUTY 

A  substitute,  a  lieutenant  ;  a  representative  ;  an  assistant. 

DERELICT 

A  thing  voluntarily  abandoned  or  cast  adrift ;  a  ship  abandoned  at 
sea.  A  tract  of  land  from  which  the  sea  has  receded,  and  fit  for  cul- 
tivation or  use. 


294 


GLOSSAX  Y. 


DERELICTION 

The  act  of  abandoning  with  intention  not  to  reclaim.  A  receding  of 
the  sea  whereby  land  is  gained. 

DESPATCH 

(Marine  Insurance)  A  certificate  setting  forth  the  value  of  a  ship 
and  her  cargo  liable  to  contribution  in  case  of  a  loss  incurred  for  the 
common  benefit. 

DEVIATION 

(Marine  Insurance)  A  wilful  departure  from  a  ship's  allotted  course, 
forfeiting  insurance. 

DIFFERENTIAL  DUTY. 

(Also  Discriminating  Duty)  A  higher  duty  levied  and  collected  on 
certain  merchandise  when  imported  indirectly  from  the  country 
where  it  is  produced  than  when  imported  directly.  A  higher  tonnage 
duty  on  vessels  not  owned  by  citizens  of  the  importing  country  than 
on  vessels  owned  wholly  or  in  part  by  such  citizens. 

DIRECTOR 

One  who  directs,  guides,  superintends,  governs,  or  manages.  One 
of  a  number  of  persons  elected  or  appointed,  having  authority  to 
manage  and  direct  the  affairs  of  a  company  or  corporation. 

DISAFFIRM 

(Wor.)     To  annul  or  cancel,  as  a  voidable  contract. 

DISCHARGE 

The  unloading  or  unburdening  of  a  ship  or  cargo.  (Wor.)  The  act 
of  setting  free  ;  acquittance  ;  the  instrument  by  which  a  person  is 
discharged  from  debt  or  obligation,  or  an  encumbrance  is  cancelled. 

DISHONOR 

Refusal  to  pay  ;  to  repudiate. 

DISPOSSESS 

To  put  out  of  possession  ;  to  deprive  ;  to  take  away. 

DISTRAIN 

(Wor.)  To  seize  and  keep  as  a  pledge  in  order  to  compel  the  per- 
formance of  some  duty,  such  as  the  payment  of  rent,  the  perform- 
ance of  services,  an  appearance  in  court,  etc. 

DISTRICT 

(Wor.)  A  civil  division  of  a  State  or  country  for  judicial  or  other 
purposes. 

DIVIDEND 

The  share  or  sum  of  the  estate  of  a  bankrupt  paid  to  creditors.  In 
the  case  of  stock,  a  sum  to  be  distributed  among  the  stockholders. 


GLOSSARY.   -  295 

DIVIDENDS  ON  (OR  OFF) 
(Seepage  215.) 

DIVIDEND,  STOCK 

A  dividend  payable  in  reserved  or  additional  stock. 

DIVIDEND  WARRANT 

A  paper  calling  for  the  payment  of  a  dividend. 

TO  MAKE  A  DIVIDEND     To  set  apart  a  sum  of  money,  or 

a  number  of  shares  for  such  dividend. 

TO  PASS  A  DIVIDEND     To    fail    to    make    an    expected 
dividend. 

DOCKAGE 

A  charge  for  the  use  of  a  dock  ;  dock  rent. 

DOCUMENT 

A  writing,  or  paper. 

DOMICILIATED 

A  note,  draft,  or  other  obligation,  when  payable  in  a  different  place 
from  that  in  which  it  is  drawn,  is  domiciliated  in  the  place  where  it  is 
payable. 

DOUBLE  ENTRY 

A  mode  of  bookkeeping  in  which  two  entries,  one  credit  and  one 
debit,  are  made  of  every  transaction. 

DOWER 

That  portion  of  a  man's  lands  and  tenements  to  which  his  widow  is 
entitled  after  his  death,  to  have  and  to  hold  for  her  natural  life.  ' 

DRAUGHT 

Allowance  on  goods  sold  by  weight. 

DRAWBACK 

(Wor.)  Any  sum  of  money  paid  back ;  an  allowance  made  by  the 
government  to  persons  on  the  re-exportation  of  certain  imported 
dutiable  goods  ;  also  a  repayment  or  remission  of  a  duty  laid  on  any 
articles  produced  in  a  country,  and  suitable  for  the  foreign  market, 
when  such  article  is  entered  for  exportation. 

DRAWEE 

The  person  on  whom  an  obligation  to  pay  is  drawn. 

DRAWER 

One  who  draws  a  bill  of  exchange,  draft,  or  other  paper  ;  the  maker. 

DUNNAGE 

Material  used  in  the  stowing  of  cargo  in  a  vessel  to  preserve  the 
cargo  from  chafing  or  injury. 


296  GLOSSARY. 

DUTY 

A  tariff  or  tax  on  certain  domestic  and  imported  articles. 

£ 

E.  E. 

Errors  excepted. 

E.  &  O.  E. 

Errors  and  omissions  excepted. 

EMBARGO 

A  governmental  detention  or  restraint  of  vessels  or  commerce  by 
preventing  vessels  or  shipping  from  entering  or  leaving  its  ports. 

ENDORSEMENT 

The  signing  of  one's  signature  on  the  back  of  any  document.  (See 
Notes.) 

ENDORSER 

One  who  endorses. 

ENDORSER  FOR  VALUE 

One  who  endorses  paper  drawn  to  his  own  order  to  obtain  the  value 
thereof,  or  who  endorses  paper  payable  to  another,  on  being  indemni- 
fied against  loss,  or  who  receives  a  consideration  for  his  endorsement. 

ENTREPOT 

A  magazine  ;  a  warehouse  for  depositing  goods  (Wor.). 

ENTRY 

A  record.  Reporting  a  vessel  or  cargo  at  the  custom-house.  Taking 
possession  of  lands  or  tenements. 

EXCISE 

A  tax  upon  articles  of  domestic  production. 

EXECUTION 

The  seizure  by  legal  authority  of  goods,  chattels,  or  rights  for  the 
satisfaction  of  a  judgment. 

EXECUTOR 

A  person  appointed  by  a  testator  in  his  will  to  see  that  its  provisions 
are  carried  out. 

EXPRESS 

A  regular  and  speedy  conveyance  for  messages,  packages,  etc. 

EXPRESSAGE 

The  charge  made  by  express  companies  for  carrying. 


GLOSSARY.  297 

P 


FEE 

A  charge  ;  a  bill. 


FIRM 

A  partnership  ;  the  persons  composing  a  partnership. 

F.  O.  B. 

Free  on  board.     To  deliver  to  a  particular  transportation  company 
free  of  cartage  charges. 

FREE  PORT 

A  port  where  goods  may  be  landed  free  from  custom-house  restric- 
tions (Wor.). 

FREIGHT 

Transportation  charges.     Articles  in  transit. 

G 

GARBLE 

The  dross,  dust,  and  refuse  of  drugs  and  spices. 

GARBLER 

(In  London)     An  officer  empowered  to  inspect  drugs  and  spices. 

GARBLING 

Selecting  the  worst  of  any  commodity. 

GRACE 

The  time  beyond  the  .due  date  in  which  the  debtor  may  make  pay- 
ment on  a  note,  bill  of  exchange,  or  other  obligation. 

GROUNDAGE 

The  charge  made  for  the  ground  or  berth  occupied  by  a  ship  while  in 
port. 

H 

HUSBANDAGE 

The  agent  or  managing  owner's  allowance  or  commission  for  attend- 
ing to  a  ship's  business. 

I 

INSOLVENT 

One  who  cannot  pay  his  obligations  in  full. 

INSURANCE 

The  act  of  insuring  or  assuring  against  loss  or  damage  by  a  contin- 


298  GLOSSARY. 

gent  event  ;  a  contract  whereby  for  a  stipulated  consideration,  called 
a  premium,  one  party  undertakes  to  indemnify  or  guarantee  another 
against  loss  by  certain  specific  risks  (Web.). 

The  person  who  undertakes  to  pay  in  case  of  loss,  the  "  insurer"  ; 
the  danger  against  which  he  undertakes,  the  "  risk  "  ;  the  person  pro- 
tected, the  "insured"  ;  the  sum  which  he  pays  for  the  protection, 
the  "premium  "  ;  and  the  contract  itself  when  reduced  to  form,  the 
"policy." 

Insurance  is  divided  into  Accident  and  Casualty  Insurance,  En- 
dowment Insurance,  Fire  Insurance,  Life  Insurance,  Marine 
Insurance,  etc. 

INSURANCE  BROKER 

A  broker  who  effects  insurance. 

INSURANCE  COMPANY 

A  corporation  which  sells  insurance. 

INTEREST  SHORT 

(Marine  Insurance)  The  amount  over-insured. 

INVOICE 

An  account,  giving  particulars,  marks  of  packages,  prices,  etc.,  of 
goods,  furnished  by  a  consignor  to  his  consignee,  by  a  seller  to  a 
purchaser,  or  by  a  shipper  to  a  transportation  company. 

J 

JETTISON 

The  use,  destruction,  abandoning,  or  casting  overboard  of  any  part 
of  the  ship's  equipment,  or  for  the  sake  of  preserving  the  whole, 
or  the  running  aground  of  the  ship  to  prevent  sinking.  The  owners 
of  the  cargo  or  property  so  used  or  destroyed,  abandoned,  or  cast 
overboard,  have  a  right  to  recover  its  value  pro  rata  from  the  ship- 
pers whose  property  was  saved. 

JUDGMENT  NOTE 

A  promissory  note  to  which  a  confession  of  judgment  is  added,  waiv- 
ing necessity  of  lawsuit  to  procure  judgment. 

L 

LETTER  OF  LICENSE 

Creditor's  permission  to  a  debtor  to  manage  his  affairs  without  inter- 
ference for  a  specified  time. 

LIGHTERAGE 

The  hire  of  a  lighter  or  barge. 


GLOSSAK  Y.  299 

LINE  OF  DEPOSIT 

The  average  amount,  during  a  given  period,  on  deposit  to  a  dealer's 
credit  in  the  bank  with  which  he  deals. 

LINE  OF  DISCOUNT 

The  amount  of  a  dealer's  discounts  or  loans  from  a  bank.  Also  the 
amount  of  credit  which  a  bank  extends  a  depositor. 

LIQUIDATION 

The  act  of  settling  or  winding  up. 

LIVE  PAPER 

Unmatured  promissory  notes,  in  contradistinction  to  matured,  dead, 
or  protested  paper. 

LLOYD'S  REGISTER 

A  book  issued  by  the  Lloyds,  setting  forth  the  name,  tonnage,  build, 
rating,  and  other  matters  pertaining  to  ships  and  shipping. 

M 
MANIFEST 

A  list  or  invoice,  containing  a  description  by  marks,  numbers,  etc., 
of  a  ship's  cargo.  Also,  in  the  case  of  transportation  and  express 
companies,  a  list  of  all  goods  to  be  delivered  at  a  particular  station. 

MARGIN 

(See  Stock  Brokers,  page  186.) 

MULCTS 

Fines  levied  upon  ships  and  their  cargoes  to  maintain  consuls,  garri- 
sons, etc. 


NOTARY  PUBLIC 

A  State  officer  empowered  by  commission  to  take  acknowledgments, 
administer  oaths,  take  depositions,  and  protest  notes  and  other  nego- 
tiable paper,  within  a  certain  county  or  counties  as  prescribed  by  law. 

O 

OVERDRAFT 

Balance  due  on  an  overdrawn  account.  The  amount  of  a  check, 
note,  or  draft  in  excess  of  the  drawer's  credit  with  the  person  on 
whom  drawn. 


PAR 

Face  value. 


3<DO  .  GLOSSAX  Y. 

PAR  OF  EXCHANGE 

The  relative  bullion  value  of  the  money  of  one  country  to  that  of 
another.  (See  Exchange,  page  44.) 

PERMIT 

A  customs  license  to  remove  goods,  after  payment,  of  duties,  from 
public  stores. 

PIERAGE 

Taxation  for  the  maintenance  of  piers. 

POLICIES,  FLOATING 

(Fire  Insurance)  Policies  on  goods  in  undesignated  buildings,  or  in 
two  or  more  named  buildings,  where  the  amount  of  goods  in  each 
building  is  not  specified. 

POLICIES,  OPEN 

(Marine  Insurance)  Policies  in  which  the  value  of  goods  insured  is 
not  specified. 

POLICIES,  VALUED 

(Marine  Insurance)  A  policy  stating  the  value  of  the  insured  mer- 
chandise. 

POLICY 

A  contract  between  an  insurance  company  and  the  insured. 

PREMIUM 

(Insurance)  The  charge  made  by  the  insurer  to  the  insured  for  the 
insurer's  assumption  of  loss. 

PREMIUM  OF  EXCHANGE 
(See  Exchange,  page  44.) 

PREMIUM  ON  SHARES 

(See  Stocks,  page  209.)     The  price  beyond  the  face  value. 

PRICE,  AVERAGE 

The  average  money  value  of  securities  or  commodities  for  a  length  of 
time. 

PRICE  CURRENT 

A  current  list  of  the  market  price  of  commodities  or  securities. 

PRICE,  MARKET 

The  money  measure  of  the  value  of  securities  or  commodities. 

PRIMAGE 

A  percentage  allowed  by  shippers  to  the  owners  or  charterers  of  a 
vessel  for  the  loading  of  goods. 


GLOSSARY.  301 

PRIME  EXCHANGE 

Is  exchange  issued  by  houses  of  known  solidity,  whose  bills  are  every- 
where accepted. 

PRINCIPAL 

Capital.     The  sum  on  which  interest  is  computed  and  paid. 

PROCURATION. 

Power  or  authority  to  act  for  another. 

PRO  FORMA 

For  form's  sake.  A  fictitious  transaction  used  to  illustrate  a  business 
dealing. 

PROMPT 

The  period  of  time  within  which  payment  must  be  made  for  goods 
purchased. 

PROTEST  OF  NOTES 

The  notarial  certificate  required  by  law  of  the  due  presentation  to 
and  refusal  of,  a  maker  to  pay  a  note. 

Q 

QUARANTINE 

The  time  which  a  ship  must  remain  at  a  given  point,  called  "  Quar- 
antine," before  entry  into  port.  (Leg.)  The  right  of  a  widow  to  re- 
main in  the  homestead  of  her  husband  for  the  period  of  forty  days 
after  his  death,  without  being  liable  for  rent. 

QUOTATIONS 

The  prices  quoted  or  named. 

R 

REBATE 

An  allowance.  A  repayment  by  a  lender  to  a  borrower  of  interest 
from  the  time  on  which  an  obligation  is  paid  to  that  on  which  it 
is  due 

RECEIPTS 

Acknowledgments  of  delivery,  payment,  or  satisfaction. 

RECONCILE 

To  agree  upon  and  correct  differences  in  the  details  of  an  account 
current.  To  cause  the  balance  in  each  to  correspond. 

REGISTER 

An  official  document  relating  to  a  vessel,  stating  its  nationality,  place 
of  building,  measurement,  etc. 


302  GLOSSAR  Y. 

RETIRE 

To  take  up  or  pay  before  maturity  a  loan  or  note  discounted. 

RESPONDENTIA  LOAN 

Money  lent  upon  the  security  of  a  cargo. 

RETURNS 

Remittances.     Sales  for  a  given  time. 

REVERSIONARY  INTEREST 

A  right  to  possession  of  property  at  the  termination  of  a  precedent 
estate. 

S 
SALVAGE 

A  compensation  for  rescuing  or  preserving  a  vessel,  its  cargo,  or  any 
part  thereof  from  entire  or  partial  loss.  The  amount  of  such  com- 
pensation. 

SCRIP 

Dividends  payable  in  stock  issued  upon  the  capital  of  a  company. 

STOCK,  PREFERRED 

(See  Stocks,  page  212.) 

STOCK,  SECOND  PREFERRED 

(See  Stocks,  page  212.) 

STOCK  SHORT 

(See  Brokers,  page  190.) 

SUPERCARGO 

An  owner's  agent  aboard  ship  to  superintend  the  sale  of  cargo,  to 
procure  freight,  etc. 

SURPLUS 

A  fund  over  and  above  the  capital  required  to  conduct  a  given  enter- 
prise. In  banks,  a  fund  in  excess  of  the  capital  and  legal  reserve, 
and  out  of  which  dividends  are  paid. 

SUSPENSE  ACCOUNT 

An  account  of  unpaid  notes,  disputed  claims,  and  moneys  in  litigation. 
An  account  of  claims  of  dubious  value. 

T 

TELLER 

(See  page  118.) 

TIME  BARGAIN 

A  contract  to  be  performed  at  a  future  specified  time,  usually  applied 
to  the  purchase  or  sale  of  goods  or  securities. 


GLOSS  A  R  Y.  303 

TONNAGE 

The  carrying  capacity  of  a  vessel  expressed  in  tons ;  also  the  quantity 
of  freight  a  vessel  is  permitted  to  carry. 
TRANSIT 

A  custom-house  warrant  or  pass. 

TRUE  BILL 

An  indictment  sanctioned  by  a  Grand  Jury. 

U 

UNDERWRITER 

One  who  underwrites  or  guarantees  the  payment  of  a  policy  of  insur- 
ance ;  an  insurer. 

USANCE 

The  time  fixed  by  custom  in  which  a  bill  of  exchange  may  be  paid 
after  the  due  date  ;  grace ;  grace  as  applied  to  foreign  bills  of 
exchange. 

USURY 

An  interest  charge  above  the  rate  of  interest  prescribed  by  law,  and 
applicable  only  to  interest  on  debts  and  obligations  on  which  the  law 
prescribes  the  maximum  interest  charge. 

V 

VALUE 

(See  page  4.) 
VALUE,  FACE 

The  value  expressed  on  the  face  of  an  instrument. 
VALUE,  MARKET 

The  exchangeable  value  of  a  thing  in  open  market,  as  distinguished 

from  face  or  par  value,  or  price. 
VALUE,  PAR  , 

The  full  face  value. 
VOUCHER 

A  paper  or  document  acknowledging  that  some  payment  has  been 

made  or  other  business  transaction  effected.     A  receipted  bill. 

W 

WAREHOUSE  RECEIPTS 

Receipts   for  merchandise  issued  by  the  warehouses  in  which  such 

merchandise  is  stored. 
WARRANT 

A  draft  drawn  by  its  officers  upon  the  treasury  of  a  corporation, 

national,  State,  or  municipal  treasury. 


C  Web Webster. 

Dictionaries  :      •] 

(  Wor Worcester. 


INDEX. 


Agricultural  products,  8l 
American  securities,  47 
Arbitrage  houses,  43 
Assay  Office,  67 
Auxiliary  industries,  9 

B 

Balance  of  trade,  how  settled,  46 

Bank  account,  129 

Banks,  68,  70 

Assistant  cashier,  117  ;  Bookkeeper, 
126  ;  Cashier,  117  ;  Check  deposit, 
course  of,  130  ;  Check  deposits  not 
to  be  drawn  against  same  day,  127  ; 
Currency  deposit,  130 ;  Deposit, 
course  of,  129  ;  Deposit  slip,  course 
of,  130  ;  Directors,  board  of,  quali- 
fications, etc.,  113;  Discount,  123; 
Discount  clerk,  123  ;  Discount  de- 
partment, 122  ;  Ledger-keeper,  126  ; 
Management  of,  113  ;  Methods  of 
business,  no;  Notes,  presentation 
of,  128  ;  Note  teller,  126;  Offering 
book,  125;  Paper  for  collection,  125; 
Pass  books,  127,  129  ;  Runners, 
duties,  127  ;  Vice-president,  116 

Barter,  principles  of,  3,  5 

Bill  of  lading,  243 

Bills  of  exchange,  250 

Bonds,  217 

Car  trust  — ,  225  ;  Collateral  trust 
— ,  222  ;  Consolidated  mortgage  — , 
1st,  2d,  and  3d,  221;  Convertible — , 
222;  Corporate — ,217;  Debenture 
— ,  223  ;  First  mortgage  — ,  220  ; 
General  mortgage  — ,  224  ;  Im- 
provement and  extension  — ,  225  ; 
Income  — ,  ist,  2d,  and  3d,  prefer- 
ence, 221  ;  Redemption  before  ma- 


turity, 225  ;  Remarks,  225  ;  Second 
mortgage  — ,  220  ;  Sinking  fund  — , 
224 

Brokers,  182 

Bear  pool,  191 ;  Bucket  shops,  183  ; 
Bull  pool,  IQO  ;  Business  routine, 
184  ;  Charges,  184,  185  ;  Commis- 
sion houses,  183  ;  Consolidated  ex- 
change, 182  ;  Consolidation  of 
properties,  188  ;  Curbstone  — ,  182  ; 
Information,  187  ;  Interest  charges, 
186  ;  Losses,  187  ;  Margin,  185  ; 
Margin,  speculating  on,  186  ;  Mem- 
bership in  exchange,  182  ;  Pools, 
190  ;  Price  of  stocks,  187  ;  Quick 
sale,  187  ;  Rumors,  189 ;  Shorts, 
190  ;  Specialists,  185  ;  Speculation 
of  partners  forbidden,  183  ;  Tips, 
189;  Traffic  agreements,  188  ;  Two- 
dollar—,  185 

Building  and  Mutual  Loan  Associa- 
tions, 167 

Amount  of  money  invested  in,  167  ; 
Accumulation,  method  of,  168  ; 
offering  of,  179  ;  bidding  for,  176; 
Consolidation  and  merger,  173  ; 
Directors'  powers,  171  ;  Dividends, 
172  ;  Dues,  168  ;  Funds  to  be  put 
up  at  auction  and  bid  for  169  j 
Gross  premium,  serial  plan,  169  ; 
Incorporation,  certificate,  what  it 
must  state,  1 70;  certificate  of,  to 
be  approved  by  superintendent, 
etc.,  and  filed  with  county  clerk 
and  superintendent,  171  ;  Incor- 
porators,  number  of,  170  ;  Interest, 
176  ;  Loans,  limit  of,  176  ;  limit  of 
amount,  171  ;  premiums  on,  169  ; 
theory  of,  169 ;  Matured  shares, 
order  of  payment,  176  ;  Method, 
167,  168  ;  Minors  and  wards,  how 
held,  172  ;  Monthly  meetings,  176  ; 


306 


INDEX. 


Objects,  167  ;  Officers  and  creditors, 
liability  of,  172  ;  Old  corporations 
may  reorganize  under  this  law,  172  ; 
Organized  under  State  law,  167  ; 
Penalties  and  forfeitures,  168,  171  ; 
Shareholders,  dissenting,  rights  of, 
173  ;  liability,  172  ;  not  exempt  by 
reason  of  losses,  etc.,  172  ;  Shares 
up  to  $600  exempt  from  execution, 
172  ;  Subscribers,  168  ;  rights  of, 
169 ;  Usury,  172 


Cable  and  telegraph  transfers,  244 

California,  discovery  of  gold  in,  II, 
16 

Capital,  28 

Commercial  definition,  29  ;  —  dis- 
tinguished from  wealth  and  prop- 
erty, 28  ;  Insufficient  capital,  danger 
of,  31  ;  Invested  capital,  available, 
31 ;  Land  not  capital,  29 ;  Necessity 
of  use,  28  ;  Ratio  of  capital  to  busi- 
ness, 30  ;  Relation  of  capital  to 
property,  28,  29  ;  Subject  to  decay, 
28  ;  Unemployed  capital,  31 

Cash,  231 

Certificates  of  deposit,  257 

Certificates  of  indebtedness  (floating 
debts),  226 

Checks,  253 

Cashiers'  checks,  257 ;  Course 
through  bank,  256  ;  Devices  for 
protection,  255 

Cheque  banks,  242 

Clearings,  annual,  32 

Clearing  House  (New  York),  132 
Balances,  how  paid,  135  ;  Clear- 
ances, average  annual,  135  ;  Clear- 
ing charge,  133  ;  Clearing  house 
certificates,  136  ;  Clearings,  annual, 
132  ;  Creditor  banks,  135  ;  Debtor 
banks,  135  ;  Delivery  and  settling 
clerks,  134;  Dues,  annual,  133; 
England,  when  clearing  houses  first 
established  in,  134  ;  Government  of 
New  York  Clearing  House,  137  ; 
Importance  of  New  York  Clearing 
House,  135  ;  London  Clearing 
House,  clearances,  136  ;  Member- 
ship, conditions  of,  133;  Object, 
133:  Officers  and  committees,  133; 
Operation,  134  ;  Original  member- 
ship, 132;  Proof  clerk,  134;  Sub- 
Treasury,  133 


Clothing  products,  50 

Coinage  a  sovereign'  prerogative,  15 

Coinage,  free,  24 

Coins,  15 

Government  control  of,  23 

Commercial  agencies,  234 

Commercial  bills,  243 

Commercial  houses,  230 

Competition  and  combination,  55,  56 

Comptroller  of  currency,  71 

Co-operative  Loan  Associations,  173 
Accumulations,  175  ;  Attorney,  174  ; 
By-laws,  174;  Capital  stock,  174; 
Directors,  board  of,  173 ;  Dues, 
174  ;  Entrance  fee,  175  ;  Fines, 
174:  Objects,  173;  Officers,  173; 
Organization,  certificate  of,  173  ; 
Organizers,  173  ;  Payments,  when 
to  cease,  175  ;  Shareholders,  175  ; 
Shares,  174 ;  Shares,  unpledged, 
may  be  retired  by  directors,  175  ; 
Treasurer  and  secretary,  175 

Copper,  6 1 

Corporations,  200 

Directors,  residence  of,  204  ;  In- 
corporation, certificate  of,  204  ; 
Objects,  200 ;  Permits,  203  ;  Per- 
petuity, 200  ;  Privileges,  200,  204  ; 
Property  owners,  consent,  203  ; 
Resident  attorney  in  fact,  204  ; 
Stock  and  transfer  books,  204  ; 
Taxation,  202  ;  Treasury  stock, 
204 

Corporations — Duties  of  officers 
Assistant  secretary,   205  ;    Bank  to 
be  named,   206  ;  Commissioners  or 
committee,    205  ;  Directors,    board 
of,    207  ;    General   manager,    207 
President,    205  ;     Secretary,     205 
Secretary     and      treasurer,      205 
Treasurer,      205  ;      Vice-president, 
205 

Coupons,  217 

Credit 

Amount,  32  ;  on  what  extended, 
34.  35  >  system  of  country,  33  ; 
Importance  of,  7,  8,  32  ;  Money'an 
auxiliary  to,  33  ;  Paper  money,  33  ; 
Principles  of  credit,  31  ;  Credit 
Revenue  of,  to  bankers,  35 

Creditor  banks,  135 

Currency,    governmental    control    of, 
24-26 

Currency,  10,  H 

—  of  United  States,  62  ;  —  certifi- 
cates, 63 


INDEX. 


307 


D 


Debtor  banks,  135 

Demand,  54 

Disproportionate  increase  of  commodi- 
ties, 51 

Distribution,  53 

Diversity  of  industry,  how  created,  51 

Drafts,  distinction  between  draft  and 
check,  248 


Endorsements,  247 

Exchange 

Arbitrage  houses,  43  ;  Buying  ex- 
change, 40  ;  complex,  41;  domestic, 
41  ;  Final  balance,  47  ;  Final  debtor 
countries,  47  ;  Foreign  balance,  39  ; 
how  calculated,  42  ;  Gold  bullion 
basis,  42  ;  Par  of,  44  ;  Premium  and 
discount,  44  ;  Rate  of,  40  ;  Relative 
value  of  currencies,  42  ;  constantly 
changing,  42  ;  selling,  44  ;  specula- 
tion, 40  ;  Shipment  of  bullion,  47  ; 
Simple  exchange,  39  ;  World's  ex- 
ports and  imports  equal,  46  • 

Exchange,  bills  of,  250 

Exchanges,  104 

Exports  and  imports  equal,  46 

Express  companies,  238 


Final  debtor  countries,  47 
Food  products,  50 

G 

Gold  the  universal  standard  of  value, 

13,  58 

Gold  certificates,  63  ;  coinage  free, 

24  ;    money  of  the   United  States, 

60  ;  standard,  13,  58,  59 
Greenbacks,  60 
Gresham's  law,  16 

I 

Interest,  35 

Current  interest,  35  ;  Discount,  35  ; 
Interest  laws  of  States,  268  ;  Interest 
warrants,  229  ;  Legal  interest,  35  ; 
Legal  rate  arbitrary,  35  ;  to  protect 
debtors,  38  ;  Market,  36  ;  Principal, 
35  ;  Rate,  35  ;  by  what  governed, 
36,  37 


Import  duties,  57 

Individual  restraints  of  trade,  57 

Investment  securities,  228 


Labor 

Measure  of  productivity,  49  ;  Meas- 
ure of  reward,  49  ;  Price  of,  49 

Letters  of  credit,  258 

Loans  on  collateral,  112 

M 

Margin,  185 

Margin,  speculating  on,  186 

Merchant,  origin  of,  7 

Metals,  restricted  circulation,  59 

Money 

A  legal  tender,  22,  23  ;  Collateral 
restriction  of  use  of,  — 20  ;  Circula- 
tion, theory  of,  20  ;  Definition,  9  ; 
Effect  on  values,  9  ;  Fiat  money, 
17  ;  Government  regulation  of,  23  ; 
of  coin,  23,  24  ;  of  paper,  24-26  ; 
How  issued  and  distributed,  23  ; 
Inconvertible  paper  money,  21 ;  ob- 
jections, 21  ;  Increase  and  decrease 
in  value,  10,  n  ;  Issuers  must  re- 
ceive value,  25  ;  Measure  of  value, 
12  ;  Metal  money,  10,  15  ;  Money 
a  commodity,  10  ;  Not  capital  of 
issuer,  26  ;  Paper  money,  10-12,  17; 
by  whom  issued,  18,  19  ;  how  issued 
and  circulated,  24,  25  ;  Proper  is- 
suers, 22  ;  Proportion  to  credit,  9  ; 
Single  or  double  measure,  12  ;  State 
or  national  issue,  19  ;  in  what  re- 
deemable, 19  ;  Supervision  and  con- 
trol by  government,  26 

Money  orders,  239 

Monopoly,  56 

Mortgage  and    debenture  companies, 
176 

N 

National  banks 

Articles  of  association,  71  ;  Assess- 
ment, 83 ;  Banks  and  national 
banks,  68,  70  ;  Bonds,  comparison 
of,  yearly,  75  ;  exchange  of,  75  ; 
held  for  redemption  of  circulating 
notes,  74 ;  held  in  trust,  74 ; 
may  be  sold  to  pay  circulation, 
88  ;  reassignment  of,  to  bank,  76  ; 
Capital,  impairment  to  be  made 


308 


INDEX. 


good,   82,    83  ;  minimum,    73  ;  not 
to  be  withdrawn,  82  ;  Capital  stock, 

73  ;  how  paid  in,  73  >    how   trans- 
ferable, 73  ;  not  to  be  received  as 
collateral,  82  ;  Central  reserve  cities, 
79,  80  ;  Certificate  to  be  published, 

74  ;  Character  of  reserve  and  where 
kept,  79,  80 ;  Circulating  notes,  76  ; 
furnished     by    comptroller,    form, 
dies,  etc.,  76;  not  to  be  hypothe- 
cated, 82  ;  not  to  be  used  for  adver- 
tising,   79  ;    Clearing  house  certifi- 
cates, 80  ;  Comptroller  of  currency, 
71  ;  Comptroller  and  treasurer  given 
access  to  each  other's  books,    75  ; 
discretion  of,  89  ;  to  decide  if  bank 
is  entitled  to  commence  business, 
74 ;  Consolidation,  86  ;    Contracts, 
suits,    72  ;    Corporate  life,    twenty 
years,  71  ;  powers,  71  ;  Decrease  of 
bond  deposit,  74  ;  Deposit  of  bonds, 
74  ;    minimum,    74 ;    with    United 
States   Treasurer,    74 ;    Depository 
of  government  funds,  78  ;  Destruc- 
tion of  plates,  dies,  etc.,  77  ;  Direc- 
tors, election  of,  qualifications,  etc., 
77  ;  Directors,   officers,  72  ;  Disso- 
lution, notice  to  be  sent  comptroller 
and  published,  86  ;  voluntary,  86  ; 
Dividends,  81,  82  ;  penalty  for  fail- 
ure to  report,  84  ;  shall  not  exceed 
net  profits,  82  ;  to  be  reported  to 
comptroller,    84 ;    Examination    of 
plates,  dies,   etc.,   77  ;  ordered  by 
comptroller  on  notice  of  protest  of 
circulating  notes,    87  ;  Examiners' 
powers  and  fees,  85  ;  Executors  not 
personally   liable,    78  ;  Expense  of 
issue,   how  paid,  76  ;  Gold  banks, 
79,  80  ;  Incidental  powers,  72  ;  In- 
corporators'  organization  certificate, 
71  ;  Increase  of  bond  deposit,  75  ; 
Interest,  81  ;  Lawful  money,  defini- 
tion,   79  ;  reserve,   80  ;  Liabilities, 
82  ;  not  to  be  increased,  80  ;  Liqui- 
dation, 86  ;  Maximum  loan  to  one 
party,    81  ;    May   only   issue   notes 
furnished   by  the  Federal  Govern- 
ment, 77  ;  National  bank  notes  not 
to  be  used  for  advertising  purposes, 
penalty,  79  ;  National  banks,  func- 
tions  of,    72  ;    must    receive   each 
other's  notes  at  par,  81  ;  "  Natural 
persons"  defined,  71  ;  State  banks 
may  reorganize  as  national  banks, 
79 ;  Stock    sold  on  failure  to  pay, 


73  ;  increase  or  decrease,  77 ;  Sur- 
plus, 81  ;  Taxes,  70,  84  ;  Transfers 
of  bonds,  74 ;  United  States  first 
lien  on  assets,  87  ;  Usury,  penal,  81 

National  gold  banks,  79,  80 

Necessities  of  most  universal  value,  50 

New  York  Stock  Exchange,  196 
Charges,  197  ;  Devices,  199 ;  Gala 
days,  198  ;  Gratuity  fund,  198  ; 
Membership,  198  ;  Over-certifica- 
tion, 198  ;  Seats,  198  ;  Stock  deliv- 
eries, 198  ;  how  and  when  paid  for, 
198. 

Nickel,  60 

Notary,  251 

Note  brokers,  192 

Notes,   indorsements   of,    liability   of 
maker,  how  limited,  246 

Notice  of  Protest,  252 


O 


Over- certification,  112 


Papers,  243,  250 

Pools,  190 

Postage  stamps  as  money,  22 

Post  office  orders,  fees  charged,  240 

Preservative  commodities,  50 

Price,  48 

Competition  and  combination,  55, 
56  ;  Corner,  57  ;  Demand,  effective, 
54  ;  Distinction  between  price  and 
value,  48  ;  Distribution,  53 ;  Ex- 
cessive production,  waste,  53  ;  Fac- 
tors of  price,  52  ;  High  prices,  55  ; 
Import  duties,  57  ;  Individual  re- 
straints of  trade,  57  ;  Labor,  49  ; 
Low  prices,  54  ;  Monopoly,  when 
possible,  56 ;  Preservative  com- 
modities, increase  in  value,  58,  59  ; 
Price  of  wheat,  53 ;  Production, 
cost  of,  52 ;  Railways,  canals, 
steamships,  53  ;  Restraint  of  trade, 
56  ;  Restricted  circulation  of  metals, 
59  ;  Retail  price,  50  ;  Standard  of 
value,  effect  on  price,  57  ;  Supply 
and  demand,  54  ;  Supply,  available, 
54  ;  Trades  unions,  55  ;  Transpor- 
tation and  procurability,  52  ;  Trusts, 

55 
Presentation  of  notes,  drafts,  etc.,  251 


INDEH. 


309 


Private  bankers,  178 

Business  of,  179;  Capital  of,  179  ; 
Circulating  notes,  179 ;  Financing 
companies,  179;  Government  grants, 
181  ;  Privileges  of,  179  ;  Promoting, 
179;  Railroads,  construction,  181  ; 
Reorganization  of  companies,  179, 

1 80  ;    Right   of  way   of  railroads, 

181  ;  Securities  deposited  with  trus- 
tee,   i Si  ;    West,    development   of, 
1 80. 

Protest,  252  ;  notice  of,  252 


R 


Railroads,  construction,  181 
Railways,     canals,     etc.,      effect    on 

price,  53 

Receivers'  certificates,  227 
Reclamations,  1 12 
Refining  gold,  charge  for,  23 
Registered  letter,  238 
Restraints  of  trade,  56 


S 


Safe  deposit  companies,  163 

Burglars,  fire,  etc.,  safeguards 
against,  165  ;  Box  and  safe  holders, 
165  ;  Capital,  maximum  and  mini- 
mum, 163  ;  Corporate  life  fifty 
years,  163  ;  Capital  stock  to  be  paid 
in  before  commencing  business,  164  ; 
Consolidation,  166  ;  Directors,  num- 
ber of,  election,  notice  of,  to  be  pub- 
lished, powers  of,  164  ;  Incorporat- 
ors,  five,  163  ;  Location,  importance 
of,  1 66  ;  Objects,  163  ;  Pass  word, 
165  ;  President,  164  ;  Rent  of  boxes, 
when  unpaid  for  three  years,  pro- 
cedure, 165  ;  Safes  and  boxes,  ar- 
rangement of,  165  ;  Stockholders, 
liability  of,  and  right  of  contribu- 
tion, 164 

Savings  banks,  138 

Assets  and  liabilities  to  be  reported 
to  superintendent  1st  January  and 
ist  July,  148  ;  Available  fund,  145; 
Banks  and  trust  companies,  first 
lien  on  their  assets  after  payment 
of  circulating  notes,  149 ;  Books, 
vouchers,  etc.,  to  be  examined  by 
committee,  148  ;  Business  must  be 
begun  within  a  year,  141 ;  Business, 
when  to  be  commenced,  140  ;  By- 


laws, rules  and  regulations,  and 
amendments,  copy  to  be  sent  super- 
intendent, 141;  Certificate  of  author- 
ization, on  what  conditions  granted, 
where  filed,  140  ;  Committees,  141  ; 
Creditors,  how  paid,  149 ;  Custo- 
dians of,  138  ;  Depositors,  classifica- 
tion of,  147  ;  Deposits  and  interest, 
how  invested,  143-145  ;  Deposits, 
amount  of,  limited,  143  ;  in  trust, 
143  ;  may  be  made  by  savings  banks 
in  banks  and  trust  companies,  145  ; 
maximum,  of  individuals  and  cor- 
porations, 143  ;  of  minors,  143  ; 
Directors,  number  of,  powers,  quali- 
fications, etc.,  141  ;  District  of 
Columbia,  138  ;  Dividends  and  in- 
terest, how  declared,  148;  extra,  how 
declared,  148 ;  unearned,  trustees 
liable  for,  148  ;  Improved  property 
to  be  insured,  146  ;  Incorporators, 
number  of,  138  ;  Insolvent  savings 
banks,  149  ;  Interest,  allowance  of, 
how  computed,  147  ;  change  of  rate, 
posted  in  bank,  deemed  personal 
notice,  148  ;  not  to  exceed  5  $,  147  ; 
rate  regulated  by  trustees,  147 ; 
Liquidation,  voluntary,  149  ;  Loans, 
restrictions  in  regard  to,  146  ;  Lo- 
cation may  be  changed,  145  ;  Or- 
ganization, certificate  shall  state, 
139  ;  notice  of  intention,  to  be  pub- 
lished, 139  ;  Pass  book,  in  case  of 
loss,  147  ;  to  accompany  check,  147; 
Powers,  limited  by  banking  act,  141 ; 
Quorum,  seven,  141  ;  Real  estate, 
how  held,  144  ;  Regulations  to  be 
posted  in  bank  and  printed  in  pass 
books,  143;  Restrictions,  146;  Stocks 
and  bonds,  value  to  be  determined 
by  superintendent,  148  ;  Superin- 
tendent, investigation  as  to  pro- 
posed company,  140 ;  may  apply 
interest  to  defray  expenses,  149  ; 
may  extend  time  to  begin  business, 
141  ;  may  refuse  to  file  certificate 
of  organization,  139  ;  to  give  notice 
to  county  clerk  of  refusal,  140  ;  to 
report  to  legislature,  149  ;  Surplus, 
fund  to  be  accumulated,  147  ;  how 
determined,  148  ;  Trustees,  com- 
pensation of,  142  ;  may  not  borrow 
from  bank,  142  ;  may  require  bonds 
of  employees,  142  ;  not  to  be  inter- 
ested in  profits,  142  ;  when  office 
becomes  vacant,  142 


3io 


INDEX. 


Seigniorage,  24 

Sherman  law,  24 

Silver,  n,  14 

Coinage  limited,  24,  60 

Silver  certificates,  63 

State  banks,  90 

Affidavit  of  officers,  94  ;  Annual  re- 
port to  legislature,  97  ;  Banks  and 
officers,  113;  Bank,  definition  of, 
93 ;  Banking  Department,  93  ; 
"  Bank,"  unauthorized  persons  pro- 
hibited from  using  word,  penalty 
and  exception,  109;  Bills  and  notes 
must  be  payable  on  demand,  107  ; 
Bills  payable  in  money,  108  ;  Bonds 
and  mortgages,  95  ;  Call  loans,  105  ; 
Capital,  impairment  of,  95  ;  mini- 
mum to  be  paid  in,  94 ;  Capital 
stock,  how  to  be  paid,  103  ;  Causes 
of  failure  of  State  banking  systems, 
90 ;  Certificate  of  authorization  to 
commence  business,  94  ;  Certificate 
of  individual  banker,  100  ;  Certifi- 
cate of  organization  to  be  filed  with 
superintendent  and  county  clerk, 
99 ;  to  provide,  99,  100 ;  Change 
from  National  to  State  bank,  105, 
from  State  to  National  bank,  105, 

106  ;  of  certificate,  99,  100  ;  Circu- 
lating notes,  etc.,  106,  107  ;  Circu- 
lation below  par  not  to  be  paid  out, 

107  ;  Conditions  different   in    1892 
from   previous   to    1862,   91  ;  Con- 
solidation of  banks,  102  ;  notice  of, 
etc.,    102  ;     Contracts,    circulating 
notes,  how  signed,  etc.,  104;  Cor- 
porate life,  99  ;  Creditors  to  receive 
notice,    107 ;    Creditors    or    share- 
holders may  apply  for  examination 
of   securities,    96  ;  or  for  receiver, 
98  ;    Directors,     105  ;    oath,     103 ; 
qualifications,    etc.   (hold  office  for 
one  year),    103  ;  Dissenting  stock- 
holders, 102  ;  Examiner,  not  to  be 
appointed   receiver,  93  ;  reports  to 
be   published,    95  ;    Foreign    bank 
notes  not  to  be  issued,  107  ;  Foreign 
banking    corporations    must    make 
same  deposits  as  State  banks,  95  ; 
to  secure  permission  to  do  business, 
and   appoint  superintendent    their 
attorney,  98  ;  instructions,  98  ;  not 
to   receive   deposits,    108  ;  General 
powers,    100  ;    Grace,    none,    108  ; 
Incorporators,    five,    99  ;    Indiana, 
Ohio,     Louisiana,     Massachusetts, 


and  New  York  systems,  91,  92; 
Information,  penalty  for  refusal  to 
furnish,  96  ;  Interest,  rate  of,  104 ; 
on  call  loans,  105  ;  Lawful  money 
reserve,  amount,  where  and  how 
held,  not  to  be  impaired,  etc.,  101  ; 
Loans,  limit  of,  97  ;  Location, 
change  of,  98  ;  Losses,  how  charged, 
97  ;  New  York  State  banking  laws, 
92  ;  Notes  payable  on  demand  only 
to  be  issued,  107  ;  in  lawful  money 
only  to  be  circulated,  108  ;  Officers 
not  to  purchase  commercial  paper  at 
less  than  face  value,  97  ;  Plates  and 
dies,  destruction  of,  106  ;  Powers 
of  banks,  100  ;  President  to  be  a 
director,  103  ;  Private  bankers,  100  ; 
to  give  information,  96  ;  Profits, 
calculation  of,  97  ;  Real  estate  as 
security  for  circulation,  95  ;  Real 
Estate,  how  held,  101  ;  Receiver, 
appointment  of,  98 ;  Reports  of 
examiners  may  be  published,  95  ; 
Reports,  quarterly,  summary  to  be 
published,  96  ;  penalty,  96  ;  Residue, 
distribution  of,  107;  divided  among 
stockholders,  107  ;  Restrictions  as  to 
officers,  97  ;  Securities,  comparison 
of,  yearly,  93  ;  deposit  of,  94,  95  ; 
deposited  with  Banking  Department 
as  guarantee  of  good  faith,  105  ; 
kinds  of,  deposited  with  Banking 
Department,  94,  95  ;  may  be  ex- 
changed, 95 ;  State  Banking  De- 
partment, 93  ;  Superintendent,  93  ; 
Stockholders,  definition  of,  104 ; 
dissenting,  to  consolidation,  102 ; 
liability,  104  ;  Transferees  of  stock, 
104  ;  Uniformity  in  value  of  notes, 
91  ;  Usury,  penalty  of,  104 

Stock  brokers,  182 

Stockholders,  210 

Stocks  or  shares,  209 

Assented,  216;  Assessable,  21 1  ; 
Common,  212;  Cumulative,  212  ; 
Dividend,  215  ;  Ex-Dividend,  215; 
First  assessment  paid,  216 ;  Guar- 
anteed, 216  ;  Non-assessable,  211  ; 
Non-cumulative,  213  ;  Preferred, 
212  ;  Promoters',  215 

Sub-Treasury,  New  York,  64 

Balances,  66  ;  Cost  of  handling 
money,  65  ;  Disbursements,  66 ; 
Receipts,  66 

Supply  and  demand  (price),  54 

Supply,  available  (price),  54 


INDEX. 


Trades  unions,  55 

Transmission  of  money,  237 

Post  office  orders,  fees  charged,  237 

Transportation,  52 

Transportation  and  procurability,  52 

Transportation  companies,  53,  181 

Treasury  notes,  62 

Trust  companies,  150 

Authorization,  certificate  of,  to  be 
filed  with  county  clerk  and  super- 
intendent, 159;  Authorization  may 
be  refused  by  superintendent,  159; 
Auxiliaries  to  banks,  152  ;  Banks, 
comparison  with  trust  companies, 
151  ;  relation  to,  150;  Capital,  en- 
tire amount  to  be  paid  in,  158  ; 
how  invested,  159  ;  minimum,  158  ; 
Circulating  notes,  not  issued  by 
trust  companies,  155  ;  Consolidation 
and  merger  of  trust  companies,  162  ; 
Corporate  life,  fifty  years,  153  ; 
Depositors,  character  of,  152  ;  De- 
posits, character  of,  152  ;  Directors, 
board  of,  how  chosen,  160  ;  election 
of,  161  ;  how  classified,  160;  lia- 
bility of,  161  ;  qualifications,  160  ; 
Escrow,  papers  held  in,  154  ;  Ex- 
ecutor, administrator,  etc.,  when, 
.  to  furnish  statements,  accounts,  etc. , 
159;  Financial  agent,  as,  162;  In- 
corporators,  number  of,  158  ;  Super- 
intendent to  ascertain  as  to  fitness, 
158  ;  Interest,  on  what  paid,  160 ; 
Letters  testamentary,  etc.,  159; 
Loans,  character  of,  152  ;  Manage- 
ment, 160  ;  Organization  certificate, 
notice  to  be  published  and  sent  to 
other  trust  companies  before  filing, 
158  ;  what  it  must  state  and  where 
to  be  filed,  158  ;  Payment  of  money 
.and  performance  of  obligations, 


agent  for,  155  ;  Powers  and  limita- 
tions, 156,  157;  Registrar,  154; 
Reorganization,  agent  of,  154 ; 
Stock  and  bond  holders,  agent  of, 
154 ;  Stockholders,  liability  of,  161 ; 
Stocks,  holding  of,  limited,  1 60  ; 
Trust  company,  incorporated  under 
special  laws,  161  ;  Trust  funds,  how 
invested,  160 ;  Trustee,  executor, 
administrator,  etc.,  advantage  of 
trust  company,  153. 
Trust  company  receipts,  226 


U 


Uniformity  in  value  of  notes,  69 
United  States  money,  table  of,  64 
United  States  notes  (greenbacks),  62 
United  States  Treasury  notes,  62 


Value,  definition  and  principles  of,  4 
Divisibility,  7  ;  fixed  by  barter,  5, 
1 7  ;  gold  the  universal  standard  of, 
13  ;  Intermediate,  7  ;  Intrinsic,  5  ; 
Labor  measure  of,  4  ;  Limitation 
of  quantity,  5  ;  Measure  of,  5,  12  ; 
Metals  the  measure  of,  6  ;  Relative, 
ii  ;  Standard,  12  ;  how  fixed,  12  ; 
Standard  of,  effect  on  price,  57  ; 
where  fixed,  1 2 

Values  of  Foreign  Coins,  Table  No. 
I.,  262  ;  Remarks  as  to  use  of  table. 
264 


W 


Warehouse  receipts,  243 

Weight  of  Unit  of  Foreign  Currencies 

(Table  No.  II.),  266  ;  Remarks  as  to 

use  of  table,  264 
West,  development  of,  180 


YC  23910 


